CA1: when the IRS should settle (and administrative law)

Murphy v. CIR, No. 06-1109.  The court upholds the Tax Court’s decision that a denial of an offer in compromise ($10,000 for $250,000 of tax liability) was an abuse of discretion.  The First provides an overview of the Collection Due Process hearing process and appeals to the Tax Court.  The taxpayer, before the tax court offered evidence about why he couldn’t offer the IRS more money, but, the First Circuit, holds that the Tax Court should have been limited to the record, based on “administrative law principles” to which no exception applies in this case.  (This creates a bit of a problem for counsel, as most “hearings” are off the record, though counsel can submit written material.)

The court also holds that the IRS appeals officer didn’t abuse his discretion in conducting the “hearing” which went on for eight months, with repeated extensions to submit documents.

Substantively, the court finds that the rejection was not an abuse of discretion, because the taxpayer didn’t really dispute the calculations, and the IRS’s procedures (though not regulations) specify that “the agency will not accept a compromise that is less than the reasonable collection value of the case, absent a showing of special circumstances.”  Rev. Proc. 2003-71(2)