Thomas E. Johnston and Thomas E. Johnston, Successor in Interest to Shirley L. Johnston, Deceased - Page 15

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          that an offer must satisfy to be treated as a qualified offer               
          under section 7430(g)”.  Preamble to sec. 301.7430-7, Proced. &             
          Admin. Regs., 68 Fed. Reg. 74848 (Dec. 29, 2003).  We note that             
          the final regulations added Example 4 to sec. 301.7430-7(e),                
          Proced. & Admin. Regs., which briefly discusses whether a                   
          taxpayer may reduce the amount the taxpayer will pay pursuant to            
          a qualified offer, after the offer is accepted by the                       
          Commissioner, by applying net operating loss carryovers.  The               
          language of Example 4 is as follows:                                        
               Example 4.  Offer must resolve full liability.  Assume                 
               the same facts as in Example 1, except that A makes a                  
               qualified offer that is accepted by the IRS.  After the                
               offer is accepted, A attempts to reduce the amount A                   
               will pay pursuant to the offer by applying net                         
               operating loss carryovers to the years in issue.                       
               Because the net operating losses were not at issue when                
               the offer was made, A’s offer was a qualified offer.                   
               Whether A is entitled to apply net operating losses to                 
               reduce the amount stated in the offer will depend upon                 
               the application of contract principles, local court                    
               rules, and, because net operating losses are at issue,                 
               section 6511(d) and related provisions.                                
          As stated, Example 4 was not part of the temporary regulations.             
          See sec. 301.7430-7T(e), Temporary Proced. & Admin. Regs., 66               
          Fed. Reg. 728 (Jan. 4, 2001).  The final regulations are                    
          applicable to qualified offers made after December 24, 2003.                
          Sec. 301.7430-7(f), Proced. & Admin. Regs.  Petitioners’ offer              
          was made before that date.                                                  

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