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IRS Policy to Refuse All Offers of Compromise from Bankrupt Taxpayers Violates Bankruptcy Code
Description Bankruptcy judge held that the IRS policy to refuse all offers to compromise on federal tax debts owed by bankrupts violates the anti-discrimination provision of the Bankruptcy Code. Non-bankrupt taxpayers are, at the discretion of the IRS, offered compromises, so the policy must be the same for bankrupt taxpayers.
Topic Bankruptcy
Key Words Anti-Discrimination; IRS
C A S E   S U M M A R Y
Facts Debtors in Chapter 13 bankruptcy had no assets left and a tax debt of over $110,000. They made an offer to the IRS to settle the tax debt, but the IRS rejected all offers and said that it would attempt to collect the tax debt over time in the future. Debtors challenged the IRS policy of not considering any offers of compromise of federal tax liability.
Decision The IRS policy violates the anti-discrimination provision of the Bankruptcy Code by denying taxpayers, based solely on their bankruptcy filing, the same opportunity accorded to non-bankrupt taxpayers to attempt to negotiate a compromise of tax obligations. The decision on whether to accept an offer in compromise of federal tax liability is discretionary with the IRS; it cannot be compelled to accept an offer in compromise, but it cannot have a policy that refuses to consider all compromises.
Citation In re Mills, 240 BR 689 (Bkrptcy. Ct., S.D.W.Va., 1999)

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