Effective Tax Administration or Exceptional Circumstances (“I can pay my tax liability but to do so would cause a hardship.”) – When a taxpayer has the ability to pay his or her liability in full, but to do so would cause a significant financial hardship, an Offer in Compromise based upon this ground may be appropriate.
Even though the IRS is authorized to accept an Offer in Compromise based upon Effective Tax Administration or Exceptional Circumstances, in reality, few Offers are accepted based upon this ground. The case study discussed below demonstrates how difficult it is to obtain an Offer based upon Effective Tax Administration or Exceptional Circumstances from the IRS.
Case study: Retired Couple With Old Unpaid IRS DebtA husband and wife, both retired and in their late 70s, had very old unpaid liability due to the IRS in the approximate amount of one million dollars. The value of their marital assets, including their home and remaining retirement funds, was approximately one million dollars, meaning that they were not eligible for an Offer in Compromise based upon Doubt as to Collectibility. The husband’s health was below average for a man of his age and it was clear that he would never work again. The wife’s health was terrible. She was blind, wheelchair-bound, a double amputee and her kidneys were failing. We filed an Offer in Compromise on behalf of our taxpayers based upon Effective Tax Administration or Exceptional Circumstances. We pointed out that although the taxpayers had the theoretical ability to pay the liability in full, doing so would render them unable to pay for their basic needs such as housing, food, clothing and medical care. Surprisingly, the IRS rejected the taxpayers’ Offer in Compromise, preferring to take a substantially larger portion of the remaining assets despite their age and health. As shocking as this story sounds, there is still a happy ending. We were able to negotiate a reasonable lump sum payment to the IRS along with an installment agreement that enabled our taxpayers to live the remainder of their lives in comfort and security.
The IRS Trouble Solvers have had tremendous success in obtaining IRS Offers in Compromise for taxpayers since its inception in 1991. When he was an attorney for the IRS, Mr. Sheehan said yes or no to every single Offer in Compromise at the IRS District Counsel level. Mr. Sheehan left the IRS in 1991 to represent taxpayers. Since that time, most of our Offers in Compromise have been accepted by the IRS.