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Example 2. The taxpayer is retired and his only
income is from a pension. The taxpayer’s only asset is
a retirement account, and the funds in the account are
sufficient to satisfy the liability. Liquidation of
the retirement account would leave the taxpayer without
an adequate means to provide for basic living expenses.
The taxpayer’s overall compliance history does not
weigh against compromise.
Example 3. The taxpayer is disabled and lives on
a fixed income that will not, after allowance of basic
living expenses, permit full payment of his liability
under an installment agreement. The taxpayer also owns
a modest house that has been specially equipped to
accommodate his disability. The taxpayer’s equity in
the house is sufficient to permit payment of the
liability he owes. However, because of his disability
and limited earning potential, the taxpayer is unable
to obtain a mortgage or otherwise borrow against this
equity. In addition, because the taxpayer’s home has
been specially equipped to accommodate his disability,
forced sale of the taxpayer’s residence would create
severe adverse consequences for the taxpayer. The
taxpayer’s overall compliance history does not weigh
against compromise.
Under the regulations, a compromise may also be entered into to
promote efficient tax administration if there are compelling
public policy or equity considerations identified by the
taxpayer. Compromise is justified where, because of exceptional
circumstances, collection of the full liability would undermine
public confidence that tax laws are being administered fairly.
Sec. 301.7122-1(b)(3)(ii), Proced. & Admin. Regs. Some examples
where a compromise is allowed for purposes of public policy and
equity are: (1) A taxpayer who was hospitalized regularly for a
number of years and was unable, at that time, to manage his
financial affairs and (2) a taxpayer learns at audit that he was
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Last modified: March 27, 2008