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Bankruptcy Court orders IRS to consider debtors Offer in Compromise In a case that may have far reaching potential, a Bankruptcy Court has ordered the IRS to consider a Chapter 11 debtors Offer in Compromise while the debtor is in Chapter 11. The court in Holmes v United States (USBC Middle District of Georgia) ruled that the Court had the equitable power to order the IRS to consider the OIC pursuant to 11 USC 105 which provides that the bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code. A second Bankruptcy Court has ordered the IRS to consider a Chapter 13 debtors Offer in Compromise while the debtor is in Bankruptcy. The court in Holmes v United States (USBC for the middle district of Georgia) had previously ruled that the Court had the equitable power to order the IRS to consider the OIC pursuant to 11 USC 105 which provides that the bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code. Now a second Bankruptcy Court has adopted the reasoning in Holmes and in a Chapter 13 ordered the Internal Revenue Service to consider the Debtor's OIC while the Debtor remains in Bankruptcy. See: In Re Peterson (USBC District of Nebraska) (click on the title to read the case) The implications of this holding are tremendous for Chapter 13 Debtors! Imagine the client with huge payroll tax liability who really needs a Chapter 13 because of the totality of debt, but who would simply be unable to pay the priority taxes through Chapter 13. If the taxpayer were able to compel the IRS to consider his OIC, it could allow him to reorganize. The court ruled that Section 7122 of the Internal Revenue Code provides that the IRS may compromise any tax obligation and that guidelines are prescribed for the IRS to determine whether an Offer in Compromise is adequate and should be accepted. The court took the position that the purpose of an Offer in Compromise is to facilitate the settlement of tax liabilities without litigation. The Internal Revenue Code, provides that the IRS may compromise any civil or criminal IRS tax obligation. pursuant to I.R.C. § 7122(a). Neither the Bankruptcy Code, the Internal Revenue Code, nor the Treasury Regulations provide that Respondent cannot consider an Offer in Compromise during the pendency of a bankruptcy case. This provision is only found in the Internal Revenue Service Manual. The court was not impressed by the provisions of the Manual which prohibited acceptance of an OIC while a debtor is in Bankruptcy. The Court then ordered the IRS to accept and process the Debtor in Possessions OIC. If the holding in these 2 cases were to be adopted by other Courts, it would open up a wealth of opportunity for Debtors. Imagine the client with huge payroll tax liability who really needs a Chapter 13 because of the totality of debt, but who would simply be unable to pay the priority taxes through Chapter 13. If the taxpayer were able to compel the IRS to consider his OIC, it could allow him to reorganize.
The full text of the Holmes case may be reviewed: CLICK HERE The full text of the Peterson case may be reviewed: CLICK HERE
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