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State and Local Tax

TC: Offer-in-Compromise Was Rejected When File Was Closed

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

The U.S. Tax Court has held that a taxpayer’s offer-in-compromise (OIC) was rejected by the IRS when an agency collection specialist closed the file and returned the OIC to the taxpayer, not at a later date when a notice of determination was issued.


Michael D. Brown had a tax liability that exceeded $50 million. In an effort to collect a portion of this unpaid liability, the IRS issued a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing. Brown timely requested a collection due process (CDP) hearing. In April 2018, at the outset of the hearing, Brown submitted an OIC. The IRS processed the OIC and forwarded it to a collection specialist for review.

In November 2018, the collection specialist informed Brown that his file had been closed and that the offer was being returned to him because “other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted.” During the CDP hearing, Brown urged the IRS to overturn its decision. The agency concluded that the OIC was correctly returned to Brown and proceeded to close the CDP case. In August 2020, the IRS issued a notice of determination, and Brown timely petitioned the Tax Court.

Brown filed a motion for summary judgment contending that his OIC was “deemed accepted” by the IRS under Code Sec. 7122(f). That section provides that an OIC is “deemed to be accepted” if it “is not rejected by the [IRS] before the date which is 24 months after the date of the submission of such offer.”

Brown argued that the rejection occurred 27 months after his OIC was submitted—that is, in August 2020, when the IRS issued the notice of determination. The agency asserted that the rejection occurred seven months after the OIC was submitted—that is, in November 2018, when the collection specialist returned the OIC to Brown and closed the file on his offer.

The Tax Court based its holding on a Ninth Circuit decision in a case brought by the same taxpayer (Brown, (CA 9 2020) 126 AFTR 2d 2020-6644). The appeals court has ruled that “an offer ‘will not be deemed to be accepted if the offer is, within the 24-month period, rejected by the [IRS], [or] returned by the [IRS]'” to the taxpayer

For information on how long the IRS has to accept an OIC, see here.


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