U.S. Tax Court Finds IRS Settlement Officer Did Not Abuse His Discretion When Rejecting Couple’s Offer in Compromise
In Pansier v. Commissioner of Internal Revenue, a Wisconsin man apparently failed to file his federal income tax returns for 1995 through 1998. In 2000, the Internal Revenue Service sent the man a statutory notice of deficiency and ultimately assessed taxes and penalties of more than $83,000. In late 2005, the man was charged with filing false income tax returns and other related crimes. He later served two years in prison in connection with his crimes. As part of the man’s criminal case, he was ordered to file federal income tax returns for the tax years 1999 through 2006.
In 2008, the man and his wife filed late returns for the tax years 1999 through 2006 but failed to pay the amount due reflected on each tardy federal income tax return. Before filing the overdue returns, however, the couple sought bankruptcy protection. After the couple received a general discharge in 2009, they claimed that their tax liability was discharged as part of the bankruptcy proceedings. A bankruptcy court and the Seventh Circuit Court of Appeals disagreed and held the couple’s tax liability was not discharged.
About two years later, the IRS sent the man a final notice regarding the Agency’s intent to issue a tax levy for both 1995 through 1998 and 1999 through 2006. The couple submitted a “Request for a Collection Due Process or Equivalent Hearing” and claimed that the taxes at issue were the subject of bankruptcy court proceedings. For more than one year, the couple also argued that a hearing was premature due to ongoing litigation.
At the couple’s request, an IRS settlement officer provided them with a detailed written review of their account. The Agency employee also told the couple they must file Form 433-A in order to request consideration of collection alternatives. Initially, the couple refused to complete the form and submitted an offer in compromise that was later rejected. The couple corresponded with the IRS at length regarding their tax liability until 2013. At that time, the Agency issued two notices of determination stating the man owed more than $340,000 in past due taxes.
In proceedings before a United States Tax Court, the couple claimed that the IRS settlement officer abused his discretion when he rejected their offer in compromise without offering an explanation. In addition, both the couple and the IRS sought summary judgment. After determining that genuine issues of material fact existed, the court denied each party’s motion. Next, the court examined the facts of the case.
According to the tax court, the settlement officer did not abuse his discretion when he rejected the couple’s offer. The court stated the couple not only altered IRS forms in order to use them as a bargaining tool with the IRS, but also demonstrated a distrust of the Agency employee’s efforts to explain their situation to them, acted combatively, and were fully aware of their tax liabilities at the time they submitted their offer. The tax court added that the couple’s long history of frivolous disputes with the agency even after numerous adverse court rulings demonstrated their unwillingness to accept any reasonable offer in compromise regardless of the settlement officer’s explanations. Because of this, the court found that the Agency employee’s refusal to accept the couple’s offer was not arbitrary or capricious and said that reconsidering the case would be futile. Finally, the tax court decided in favor of the IRS.
If you are facing an IRS tax collection action, you should discuss your situation with a veteran tax attorney as soon as possible. William Hartsock is a certified tax law specialist with more than three decades of experience assisting clients in San Diego and across Southern California with their international income and other taxation issues. For a free consultation with an experienced tax lawyer, call Mr. Hartsock today at (858) 481-4844 or contact him online.
Pansier v. Commissioner of Internal Revenue, 2014 TC Memo 255 – Tax Court 2014
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