Tax Court holds in 2 cases that acceptance of offer in compromise is a binding settlement and forecloses raising further issues 2/21/04 8/21/04
1. The Court in Johnson refused to allow taxpayers to reduce their qualified offer to settle1989, 1991, and 1992 tax years before the Tax Court by net operating losses (NOLs) sustained in the 1988, 1990, 1993, finding the offer settled all issues.
2. The Court in Dutton found no mutual mistake of fact allowing revocation of the offer. The IRS sent a letter erroneously indicating taxpayer would receive a refund in connection with granting taxpayer's request for innocent spouse relief for 1986 and 1987 (refunds are not allowed), followed by IRS denial of the request for innocent spouse relief after acceptance of an offer in compromise for 1986, 1987 and 1993 through 1999. The erroneous letter was sent after taxpayer submitted an offer, and the error was corrected in subsequent communications with taxpayer's representative before the offer was accepted.
Dutton v Comm., 122 T.C. 7, 2004 WL 244382 (February 11, 2004)
Taxpayer petitioned the Tax Court for review of IRS's denial of his request for innocent spouse relief from joint and several tax liability after IRS had accepted his offer in compromise.
- On September 3, 1999, Taxpayer submitted a Form 8857, Request for Innocent Spouse Relief, requesting relief from joint and several liability for the taxable years 1984, 1985, and 1986.
- On April 24, 2001, petitioner submitted an amended Form 656, Offer in Compromise, offering to compromise all income tax liabilities, including any interest, penalties, additions to tax, and additional amounts required by law, for the years 1986, 1987, and 1993 through 1999. The offer was based on doubt as to collectability (not on doubt as to liability or the promotion of effective tax administration).
- By letter dated May 7, 2001, an Internal Revenue Service (IRS) manager informed petitioner that the IRS proposed that taxpayer be granted partial relief from joint and several liability for 1986 and 1987 under section 6015(c), but relief under other provisions would be denied in full. The letter stated the manager believed that no additional payments would be due, and that after the recommended relief was granted taxpayer would be entitled to refunds for 1986 and 1987.
- Subsequent correspondence by taxpayer's representative before acceptance of the offer confirmed the representative's conversations with the IRS that the indication of a refund was incorrect and there would be no refund under sec. 6015(c).
- On July 25, 2001, the IRS accepted the offer for the years 1986, 1987, and 1993 through 1999. Taxpayer completed the payment plan under the accepted offer.
- By notice of determination dated August 12, 2002, the IRS determined taxpayer was not entitled to relief from joint and several liability under section 6013(e) and section 6015(b), (c), and (f) for the years 1986 and 1987.
Taxpayer petitioned the Tax Court and argued the IRS manager's statement that taxpayer would be entitled to a refund resulted in a mutual mistake of material fact or misrepresentation sufficient for the offer to be set aside.
The Court noted taxpayer claimed reliance on the mistaken suggestion in the May 7, 2001, letter, received approximately 2 weeks after he submitted the offer, indicating that he might receive a refund. There was no indication at the time the offer was submitted that taxpayer was under the impression that the IRS would issue a refund based on relief granted under section 6015(b), (c), or (f) if the offer was approved.
The Court found that on the basis of taxpayer's own argument:
- an offer would have been unnecessary if he believed he would receive the mistakenly suggested refund;
- the clarification of the mistake through taxpayer's representative's diligence occurred between the time the offer was made and its acceptance;
- if taxpayer later wished to withdraw the offer, he had time to do so;
- there was no mistake at the time the offer was submitted by taxpayer or when it was accepted; and
- that taxpayer was incorrect in disputing that the offer waived his right to any refund based on partial relief under section 6015(c) because no refund is permitted under section 6015(c). Sec. 6015(g)(3) regardless of the offer in compromise.
The Court further noted that:
- the offer and the request for relief from joint and several liability were 2 separate courses of action by taxpayer using 2 different attorneys to handle the matters;
- there is no indication in the record that:
- the IRS manager handling the request for innocent spouse relief knew of the pending offer;
- the IRS personnel handling the offer represented to taxpayer that an accepted offer would not bar him from obtaining refunds if relief was granted under § 6015; or
- taxpayer ever inquired as to what effect that acceptance of the offer would have on his claim for relief from joint and several liability
In his answering brief taxpayer argued for the first time that the doctrine of equitable estoppel applies. Tax Court practice is not to consider new issues raised for the first time in an answering brief, and the Court did not consider that argument.