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The Secretary may compromise a tax liability on the ground
of effective tax administration when: (1) Collection of the full
liability will create economic hardship; or (2) exceptional
circumstances exist such that collection of the full liability
would undermine public confidence that the tax laws are being
administered in a fair and equitable manner; and (3) compromise
of the liability would not undermine compliance by taxpayers with
the tax laws. Sec. 301.7122-1(b)(3), Proced. & Admin. Regs.
Petitioners proposed an offer-in-compromise based
alternatively on doubt as to collectibility, doubt as to
collectibility with special circumstances, or effective tax
administration. Petitioners formally offered to pay $40,413 to
compromise their outstanding tax liabilities for 1987 through
1995 and later increased their offer amount to $150,000.10
Respondent determined that petitioners abandoned their doubt as
to collectibility with special circumstances and effective tax
administration arguments and that, because they had the ability
to pay the currently assessed tax in full, they are not entitled
to an offer-in-compromise based on doubt as to collectibility.
10 The proposed collection action related to petitioners’
outstanding tax liability for 1987-90 only. However, petitioners
also sought to compromise their outstanding tax liability for
1991-95. The total assessed amount for 1987-95 is not in the
record, and, therefore, no reliable comparison can be made
between the offer amount and the amount assessed.
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