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Section 6330(c)(2)(A)(iii) allows a taxpayer to offer to
compromise a Federal tax debt as a collection alternative to a
proposed levy. Section 7122(c) authorizes the Commissioner to
prescribe guidelines to determine when a taxpayer’s offer-in-
compromise should be accepted. The applicable regulations,
section 301.7122-1(b), Proced. & Admin. Regs., list three grounds
on which the Commissioner may accept an offer-in-compromise of a
Federal tax debt. These grounds are “Doubt as to liability”,
“Doubt as to collectibility”, and to “Promote effective tax
administration”. Sec. 301.7122-1(b)(1), (2), and (3), Proced. &
Admin. Regs. Petitioners reported on their Form 433-A that they
had assets worth $1,388,757. Cochran determined that
petitioners’ reasonable collection potential (taking into account
their assets as well as future income) was $932,844. Petitioners
can afford to pay their $298,003 tax liability in full and do not
argue that the liability is in doubt. They seek to qualify for
an offer-in-compromise to promote effective tax administration.
See sec. 301.7122-1(b)(3), Proced. & Admin. Regs.; cf. Fargo v.
Commissioner, 447 F.3d 706 (9th Cir. 2006) (taxpayers made an
offer-in-compromise to promote effective tax administration where
they had sufficient assets to pay their tax liability in full).
Petitioners argue that respondent was required to compromise
their tax liability to promote effective tax administration. The
Commissioner may compromise a tax liability to promote effective
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Last modified: May 25, 2011