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Regulations implementing section 7122 set forth three
grounds for the compromise of a tax liability: (1) Doubt as to
liability, (2) doubt as to collectibility, and (3) to promote
effective tax administration. Sec. 301.7122-1(b), Proced. &
Admin. Regs. Doubt as to liability is not an issue in this case.
Doubt as to collectibility exists in any case where the
taxpayer’s assets and income are less than the full amount of the
liability. Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Where
the reasonable collection potential of a case exceeds the
taxpayer’s liability, doubt as to collectibility is not a ground
for compromise.
However, if collection of the full liability would cause the
taxpayer economic hardship within the meaning of section
301.6343-1, Proced. & Admin. Regs., the Secretary may enter into
a compromise on the ground of effective tax administration. Sec.
301.7122-1(b)(3), Proced. & Admin. Regs.; see also Murphy v.
Commissioner, 125 T.C. 301, 310 (2005), affd. 469 F.3d 27 (1st
Cir. 2006). Economic hardship is present when the taxpayer is
unable to pay reasonable basic living expenses. Sec. 301.6343-
1(b)(4), Proced. & Admin. Regs.
The Secretary has promulgated collection guidelines in IRM
pt. 5.15. “Allowable expenses include those expenses that meet
the necessary expense test.” IRM pt. 5.15.1.7(1) (2004).
“Necessary expenses” are defined as those necessary to provide
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Last modified: March 27, 2008