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Mr. John Doe requests that his offer in compromise in the amount of $150 be granted. Mr. John Doe should be granted the relief sought because, as discussed more fully below, he has neither the present nor future financial capability to repay his IRS liability, and it would ultimately be in the best interest of the IRS to settle this case by granting the relief requested. This request represents Mr. John Doe’s second attempt at an offer in compromise. His first offer was submitted on November 14, 2000 and was rejected by letter dated January 2, 2002.1 As discussed in section III (A) below, this present request is appropriate because Mr. John Doe’s financial circumstances have changed since the time of his first offer in compromise.
II. A. General Background
Mr. John Doe is a 63-year-old man in very poor health and who only has an eleventh grade education. He has several very serious medical conditions including prostate cancer, for which he is currently undergoing radiation treatment. In addition to cancer, Mr. John Doe suffered a stroke in December 11, 2001, and is also plagued with hypertension, and shoulder and back injuries. 2 On August 28, 1998, while working as a supervisor for Roane’s Rigging and Transfer Company (a rigging and moving firm), Mr. John Doe tore his right rotator cuff and had to undergo surgery as a consequence. 3 This injury as well as his degenerating health necessitated a reduction in Mr. John Doe’s physical activity. Mr. John Doe has not been able to work since August 28, 1998. Mr. John Doe’s physical ailments require him to keep frequent appointments at the hospital. Furthermore, his limited education combined with his advanced age and poor health indicates that it is unlikely that Mr. John Doe will be able to obtain future employment. On January 26, 1999, Mr. John Doe filed applications for disability insurance benefits and Supplemental Security Income benefits. In an order dated February 22, 2000, Mr. John Doe was found to be disabled under section 1614(a)(3)(A) of the social security act and was therefore found to be entitled to Social Security benefits under section 216(i) and 223 of the Social Security Act. Among the findings of fact made by the Administrative Law Judge were that Mr. John Doe is of advanced age, has severe
See Exhibit #6 See Exhibit #1: Medical Records 3 See Exhibit #1: Medical Records
State of Franklin. these payments are insufficient to cover his basic living expenses. has a current market value of $645 and therefore a quick sale value of only $516 . John Doe’s house. and is considered to be disabled as of September 1. The lump sum payment represented a retroactive disbursement of the benefits Mr.3.127. the quick sale value of $45. John Doe who uses it to get to and from his medical appointments and to get around to do his daily chores.12 4 See Exhibit #2.34. 8 March 18. Mr. Mr. In an decision dated February 22. City of Benjamin. The Commission ordered that Mr. John Doe has two mortgages on this property. Internal Revenue Manual section 5. 2002. John Doe began receiving these payments.9 However. 1998.447. 5 See Exhibit #2. based on the “Kelley Blue Book”. Mr.physical impairments. 2006. 9 See Exhibit #4 10 See Exhibit #4 11 In valuing assets for the purposes of determining minimum offers in compromise.5. As a result there is no net realizable equity in the property. there is no realizable equity in the property. John Doe’s only source of income both currently and in the foreseeable future. states that the asset should be valued at the 80% of its fair market value.395. 12 See Exhibit #4 2 .551. In the case of Mr.980.34 in total mortgages on the property. an administrative law judge came to these conclusions of fact after considering all the evidence presented in Mr. Mr. has an unskilled work background with no transferable work skills.972 on September 12. one with Country Wide Home Loans. John Doe currently owns a home located at 4034 Lyndale Avenue. John Doe’s home has a market value of $56. John Doe’s application for disability insurance and supplemental security income benefits. John Doe began receiving bi-weekly payments in the amount of $382 from the Subsequent Injury Fund. 2006 will be 125 weeks from the date that Mr.10 With a quick sale value of only $45. the Worker’s Compensation Commission for the state of Franklin awarded Mr. indicating the amount the asset may sell for in a “quick sale”.1 (11-01-2000).42. John Doe began receiving his social security payments in September 2000 beginning with a lump sum disbursement of $19.4 Mr. 6 On August 18. which. 2003. This vehicle is an essential source of transportation for Mr. 6 See Exhibit #2 7 $191 per week paid every two weeks. which has a principle balance of $38.447. 7 These bi-weekly payments will end on March 18.584 falls below the $55. 2000 and subsequent monthly payments of $1. John Doe also owns a 1992 Pontiac Sunbird. John Doe compensation for permanent partial disability that resulted from the afore mentioned on-the-job rotator cuff injury.584. These mortgages add up to the sum of $55.8 The Social Security and Worker’s Compensation payments represent Mr. John Doe had not received from the time he became disabled (September 1998) up until September 2000. John Doe receive $191 per week for 125 weeks from the State’s Subsequent Injury Fund.31 and the other with Homecomings Financial with a principle balance of $17.8. 5 On September 6. 2001. As indicated in part III.11 Mr. According to the Real Property Data search service offered by the Franklin Finance Department.
as indicated in Exhibit #6. on November 8. 2000 was only $549. On May 17. $76 applied on April 15. 2000 and November 8. John Doe possessed at least $5. In all. These payments ended in 1998. John Doe for not including as income $3. His refund for 1994 of $9. John Doe’s financial circumstances have changed since the time of his first OIC.531 for both the 1994 and 1998 tax periods. John Doe’s offer in compromise dated November 14. John Doe currently has a total IRS debt of $24. 15 See Exhibit #6 3 . John Doe was subsequently assessed a tax liability of $34. 1997. John Doe a total IRS debt of $24. ARGUMENT A. 2000. 2000 – the day Mr. 1998 and $1. 2000. 2000. In a further attempt to resolve this tax controversy. The business never took off and Mr. he did not realize initially that he was required to pay taxes on that amount.174 showing in his October 2000 bank statement (the most current statement available at the time the offer was made). there were eighty-three such payments of $35 each.306 applied on April 15. by letter dated April 11.138 in realizable equity due in large part to a balance of $5. John Doe’s October 2000 bank statement. Mr. Tax Liability Mr. 1996 and is still open today. See Exhibit #6 for a copy of the money order and an explanation for the depletion of funds in the account between October 10.B. however. 2000. 1996 and ending on February 17. 1995. IRS settlement Officer Jane Doe stated that her analysis of Mr. $6.853 along with payments of $536 and $340 were applied to this tax liability. The IRS. In 1994 Mr. John Doe began making weekly payments towards his 1994 tax liability. Refunds for subsequent tax years were also withheld and applied to the 1994 tax liability. 2002. 1996.480 applied on April 15. 14 III. John Doe purchased a money order for payment of the OIC – the actual amount in his bank account was only $549. John Doe has made two previous attempts to resolve this tax controversy.750 in unemployment compensation for 1998. which showed a balance of $5. John Doe tore his right rotator cuff and as a result was unable to continue working. John Doe’s financial status as of November 2000 showed a net realizable equity of $5. However. 1999.389 for the 1994 tax year on May 2. As a result. 2003. However. Mr.506 applied on April 15. 15 13 14 See Exhibit #3 The original OIC was submitted using Mr. John Doe submitted to the IRS an offer in compromise for $500 on November 14. 1998 Mr. John Doe took a distribution from his 401-k to start a business but owing to his limited education and lack of knowledge of tax laws. Mr. rejected this offer stating that their analysis showed that Mr. These included $4. an additional $562 in taxes was assessed for that year giving Mr. the IRS sent a notice of deficiency to Mr. Beginning on April 22. John Doe by the IRS on the May 2.138.13 A federal tax lien in this amount was filed against Mr.531 representing liability for both the 1994 and 1998 tax periods. In a letter in reference to the rejection of Mr.174 on October 10. the actual amount in this bank account as of the time the OIC was submitted on November 14. This New Offer is appropriate because Mr.
Doe’s letter. John Doe had no net monthly income.While acknowledging that Mr.416 allowed in exemptions). a $500 offer deposit and $880 equity in his car.SSA disability $0 $0 $0 $0 $0 $0 Housing and Utilities Transportation Health Care Taxes Court Ordered Payments Child/dependent care Life Insurance Secured or Legally Perfected debts Other $727 $256 $0 $0 $0 $0 $0 $201 $0 $727 $256 $0 $0 $0 $0 $0 $0 $0 $0 $1.100 $880 $0 $0 $0 $0 $0 $0 $59.138 Future Income Value (See Income and Expense Table) TOTAL MINIMUM VALUE Table 2: IRS Analysis of Income and Expenses for First OIC INCOME/EXPENSE TABLE (IET) Total Income Necessary Living Expenses Source Gross Claimed Allowed National Standard Wages/Salaries (T/P) $0 for Expenses $429 $433 Wages/Salaries (Spouse) Interest Net Business Income Rental Income Pension (T/P) Pension (Spouse) Child Support Alimony Other .174 in account less $1.758 in his bank account ($5.250 $0. John Doe had the following net realizable equity: $3.758 $500 $0 $0 $0 $0 $880 $0 $0 $0 $0 $5.349 4 .174 $500 Quick Sale Value Encumbrances Net or Realizable Exemptions Equity $1.400 $1. Tables 1 and 2 below are a duplicate of the Asset Equity and Income/Expense tables attached to Ms.500 $47.416 $3.00 $0 $0 $0 $5. Table 1: IRS Analysis of Asset Equity for First OIC ASSET/EQUITY TABLE (AET) Fair Market Value Cash/Bank Accounts Offer Deposit Loan Value Life Insurance Pension/ IRA/ 401(k) Real Estate Furniture/ Personal Effects Vehicles Accounts Receivable Tools and/or Equipment Other $59.709 $6. the analysis suggested that Mr.500 $4.600 $5.
John Doe’s new offer in compromise is therefore appropriate given this very significant change in his financial position.Asset Equity ASSET/EQUITY TABLE (AET) Fair Market Quick Sale Encumbrances or Net Realizable Value Value Exemptions Equity Cash/Bank Accounts Offer Deposit Loan Value Life Insurance Pension/ IRA/ 401(k) Real Estate Furniture/ Personal Effects Vehicles Accounts Receivable Tools and/or Equipment Other $56.679 $6.138 suggested by Ms.Total Income $1. Mr.11 $0 $2.250 $0.349 Total Expenses $1. John Doe still has no net monthly income. Mr.613 NET DIFFERENCE $1.980 $5.00 $0 $0 $0 $0.400 $516 $0 $0 $0 $55.500 $645 $0 $0 $0 $45. Doe in November 2000 to only $516 at the present time. his net realizable equity has decreased significantly from $5. show major differences between Mr. John Doe’s financial status as of the time the first OIC was submitted in November 2000 and his current financial status. Table 3: Current Financial Status .416 -$67 Net Difference X 48 months = Amount that could be paid from future income Amount that could be paid = $0.068 $0 $0 $0 $0 $0 $0 $516 $0 $0 $0 $0 $516 Future Income Value (See Income and Expense Table) TOTAL MINIMUM VALUE 5 . Whereas.00 Tables 3 and 4 below. utilizing the same analysis as used by IRS officer Jane Doe.584 $4.
531 tax deficiency. BGE bill shows outstanding balance of $465. Mr. as well as a $269 BGE bill for February 2004. 395 Other $1.42 to countrywide home loans and $200.00 B. John Doe’s $24. He has no net monthly. and his minimal assets are not accessible without causing severe hardship. Mr.20 monthly for insurance and an estimated $200 monthly for gas and maintenance 6 .02 17 $277.880 NET DIFFERENCE 17 Total Income Source Wages/Salaries (T/P) Wages/Salaries (Spouse) Interest Net Business Income Rental Income Pension (T/P) Pension (Spouse) Child Support Alimony Other . John Doe does not have the Financial Capacity to Repay his Tax Liability Making it in the Best Interest of the IRS to Accept his Offer.65 to Homecomings Financial.Table 4: Current Financial Status – Income/Expenses INCOME/EXPENSE TABLE (IET) Necessary Living Expenses Gross $0 $0 $0 $0 $0 $0 $0 National Standard for Expenses Housing and Utilities Transportation Health Care Taxes Court Ordered Payments Child/dependent care Claimed Allowed $456 $456 $121616 $894 $477 $0 $0 $0 $0 $0 $0 $0 $1.SSA disability Total Income $718 $0 $0 $0 $0 $0 $0 $0 $2. 16 Mortgage payments of $682. 395 Total Expenses Net Difference X 48 months = Amount that could be paid from future income Amount that could be paid = $0. income either now or in the future. John Doe’s financial picture shows that there is very little possibility that the IRS will ever recover Mr.068 ($673) Life Insurance Secured or Legally Perfected $0 debts $1.
all make it unlikely that Mr. stroke and hypertension. John Doe’s only source of income in the foreseeable future. His only current source of income is his Social Security Disability disbursements of $1. and cannot access the $516 realizable equity in his vehicle. and as shown in table 3. Mr. this monthly income is not even sufficient to cover his monthly expenses. John Doe requests that his offer in compromise in the amount of $150 be granted. Mr. This means that Mr. John Doe’s has no net realizable equity in assets other than the $516 possible quick sale value of is his 1992 Pontiac Sunbird. CONCLUSION For the foregoing reasons. As discussed earlier in. IV. John Doe will most likely not have any net monthly income. John Doe will be able to re-enter the workforce. In addition. This amount cannot be accessed for the purpose of paying his tax liability without causing Mr. 7 . Mr. 1998. John Doe’s current financial status casts serious doubt as to his ability to repay the $24. unskilled work background and degenerating health due to serious health conditions including prostate cancer. Equity requires that Mr. Mr. 395 will almost certainly continue to be Mr. Since Mr. His physical disabilities as well as his age also make it necessary for Mr. his offer in compromise of $150 is therefore a reasonable one and acceptance of the offer would be in the best interest of both parties. John Doe severe hardship. either now or in the future. John Doe has no net monthly income. with which to alleviate his substantial tax liability. John Doe to make frequent visits to the hospital for treatment. John Doe is currently out of work and has been since August 28. Furthermore. his advanced age and many severe ailments make it necessary for Mr. either now or in the foreseeable future. John Doe not be compelled to give up his only source of reliable transportation. John Doe to minimize his physical activity. As shown in table 4.531 he owes in taxes and penalties. 395 per month. John Doe’s advanced age (63 years old). The monthly Social Security Disability payments of $1. Mr. Asking this cancer patient and stroke survivor to walk to and from bus stops carrying groceries or having him rely solely on public transportation to make his doctors appointments would be the very picture of unconscionably and would not make for effective tax administration.As shown in tables 3 and 4.
51 $200. 20 Checks for home repair were made payable to Sean Farrell who is a person that did some work on Mr. John Doe’s savings account on October 6th 2000.174 showing in Mr.03 Explanation Date Repayment of loan to Son19 10-10-00 Payment of State Tax 2nd Mortgage Payment Cash For Personal Effects BGE Bill Mortgage Home Repair 20 Verizon Entertainment Phone Bill (verizon) 10-16-00 10-18-00 10-13-00 10-19-00 10-27-00 10-25-00 10-30-00 10-27-00 18 19 See Exhibit #3 Son used this amount for a down payment for a car.174. John Doe’s House.68 BALANCE IN BANK ACCOUNT AT THE TIME OF THE FIRST OIC The $500 submitted by Mr. John Doe’s reasonable collection potential was $5.138. IRS settlement Officer Jane Doe stated that Mr.500. John Doe’s offer in compromise was being recommended for rejection because her analysis showed that Mr. In a letter dated November 14th 2002.38 $250. Table 3: Explanation of $5.00 $333. ______________________________________________________________ Beginning Balance (10/06/02): $5. 8 .68 ______________________________________________________________ Check # 129 131 130 132 134 135 137 138 139 Amount $1.87 $52. as indicated in table 1 below.25 $543.18 This amount was based largely on the balance of $5. the actual balance in this account.68 Balance in Bank Account. John Doe as his offer in compromise reflected the total extent of his assets as of November 14th 2000.EXPLANATION OF $5.174. John Doe’s offer in compromise of $500 was a reasonable offer and should have been accepted. Thus Mr. However. as of the time the offer was submitted was only $549.174.00 $120.65 $250.00 $97.
6521 _______________________________________________________________ 21 See Appendix #5 for bank statements and cancelled checks.50 $23.00 $120. 9 .00 Purchase $23.23 Santoni’s (restaurant) $35.48 $47.87 Unexplained 11-06-00 _________________________________________________________ Total $4.625.44 Royal Farms Family Dentistry $103.00 Home Repair 10-27-00 Description Rite Aid Epic Designs K-Mart Wal-Mart World Wide Liquor Hecht’s Amount $105.97 $57.140 $275.00 $41.74 Explanation Personal Effects Housing Supplies Housing Supplies Housing Supplies Alcoholic Beverages Clothing Bank Fees Cash For Personal Effects Possibly Oil Change Food Dinner Food Dentist Date 10-10-00 10-11-00 10-16-00 10-16-00 10-16-00 10-17-00 10-25-00 10-25-00 10-25-00 10-30-00 11-02-00 11-06-00 11-06-00 ATM withdrawal fee $1.25 $125.03 _______________________________________________________________ Balance as of November 15th 2000: $549.13 $21.23 $45.50 ATM Withdrawal Wal-Mart Giant Foods $251.
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