The Internal Revenue Service's rejection of a taxpayer's offer in compromise of $28,000 for a tax liability of more than $150,000 was not an abuse of discretion, because the taxpayer failed to prove any special circumstances warranting
During the CDP hearing the settlement officer advised petitioner that the OIC would not be accepted because petitioner’s Form 1120 submitted with the OIC showed loans to shareholders of $443,887 as of October 1, 2007, and $468,888 as of September 30, 2008.
Both settlement officers encountered multiple pieces of evidence in the administrative record which stated that outstanding loans to shareholders payable to petitioner existed, including the first Form 1120.
Additional information relevant to the shareholder loan issue was then requested, and both OICs were rejected when petitioner failed to provide satisfactory evidence that no loans to shareholders existed. The information requested of petitioner was not available to the settlement officers internally (indeed, many of the internally available records stated that loans to shareholders existed), and no blanket request from petitioner was made.
Therefore the Tax Court found that the IRS's determinations were not arbitrary, capricious, or
without sound basis in fact or law.
If you need an Offer in Compromize, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).
See Copyright (c) 1994 University of Virginia School of Law Virginia Tax Review, WINTER, 1994, 13 Va. Tax Rev. 423, LENGTH: 29608 wordsReplyDelete
ARTICLE: SECTION 482: MAPPING THE CONTOURS OF THE ABUSE OF DISCRETION STANDARD OF JUDICIAL REVIEW
NAME: Francis M. Allegra *
ALSO TAXPAYER MUST PROVE TP computation is reasonable, AND Govt computation is arbitrary, capricious, without sound basis in fact
Taxpayers must show that the Commissioner's action was arbitrary, capricious, or without sound basis in fact. Ward AG Products Inc. v. Commissioner, T.C. Memo. 1998-84 and citations therein.
Judge Cohen concluded that the IRS's determination was arbitrary or without a sound basis in fact or law and was an abuse of discretion under section 446(b). Prudential Overall Supply v. Commissioner,T.C. Memo. 2002-103
The courts uniformly have held that the Commissioner's determination of a "reasonable" (and hence deductible) addition must be sustained unless the taxpayer-proves that the Commissioner abused his discretion. The taxpayer is said to bear [burden that it’s] computation is reasonable but also that the Commissioner's computation is unreasonable and arbitrary. Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 547-48 (1979).
TP reasonable AND Commissioner unreasonable – both needed
The petitioner has not met the threshold test of the reasonableness of the claimed addition to its bad debt reserve. As a result, the Court need not even address the issue of whether the respondent abused his discretion. 91 TNT 231-64 [Commissioner’s (RESPONDENT’S) Brief, Sears Imported Autos, Inc. v. Commissioner, Tax Ct. Dkt. No. 13764-90] [Sears Imported Autos, Inc. v. Commissioner (T.C. Memo. 1992-307) (Tax Ct. Dkt. No. 13764-90); 92 TNT 114-3 CAR DEALERSHIP'S ADDITION TO BAD DEBT RESERVE WAS NOT REASONABLE]
Section 446 vests the Commissioner with broad discretion in determining whether a particular method of accounting clearly reflects income. Cole v. Commissioner, 586 F.2d 747 (9th Cir. 1978); Capitol Federal Savings & Loan v. Commissioner, 96 T.C. 204, 209 (1991); Prabel v. Commissioner, 91 T.C. 1101, 1112 (1988), affd. 882 F.2d 820 (3d Cir. 1989). The Commissioner's determination is entitled to more than the usual presumption of correctness. RECO Industries, Inc. v. Commissioner, 83 T.C. 912, 920 (1984); Peninsula Steel Products & Equip. v. Commissioner, 78 T.C. 1029, 1044 (1982). Respondent's interpretation of the "clear-reflection standard [of section 446(b)] 'should not be interfered with unless clearly unlawful.'" Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532 (1979) (quoting Lucas v. American Code Co., 280 U.S. 445, 449 (1930)). The taxpayer bears "a heavy burden of [proof]" to show that the Commissioner abused her discretion, [**70] and the Commissioner's determination "is not to be set aside unless shown to be 'plainly arbitrary.'" Thor Power Tool Co. v. Commissioner, supra at 532-533 (quoting Lucas v. Structural Steel Co., 281 U.S. 264, 271 (1930)). See also Prabel v. Commissioner, supra [91 T.C. 1101] at 1112; Coors v. Commissioner, 60 T.C. 368, 394 (1973), affd. 519 F.2d 1280 (10th Cir. 1975).
Posted by Paul A. Studly, Esq.