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bear the burden of demonstrating
circumstances that are compelling enough to
justify compromise notwithstanding this
inherent inequity.
3. Compromise on public policy or equity grounds
is not authorized based solely on a
taxpayer’s belief that a provision of the tax
law is itself unfair. Where a taxpayer is
clearly liable for taxes, penalties, or
interest due to operation of law, a finding
that the law is unfair would undermine the
will of Congress in imposing liability under
those circumstances.
Example:
The taxpayer argues that collection would be
inequitable because the liability resulted
from a discharge of indebtedness rather than
from wages. Because Congress has clearly
stated that a discharge of indebtedness
results in taxable income to the taxpayer it
would not promote Effective Tax
Administration (ETA) to compromise on these
grounds. See Internal Revenue Code (IRC)
61(a)(12).
Example:
In 1983, the taxpayer invested in a
nationally marketed partnership which
promised the taxpayer tax benefits far
exceeding the amount of the investment.
* * * [T]he IRS made a global settlement
offer in which it offered to concede a
substantial portion of the interest and
penalties that could be expected to be
assessed if the IRS’s determinations were
upheld by the court. The taxpayer rejected
the settlement offer. After several years of
litigation, the partnership level proceeding
eventually ended in Tax Court decisions
upholding the vast majority of the
deficiencies asserted in the FPAA on the
grounds that the partnership’s activities
lacked economic substance. The taxpayer has
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