IRS Updates Guidance on Offers in Compromise Rejected on “Public Policy” and “Not in the Best Interests of the Government” Grounds

On October 23rd, 2013 the Internal Revenue Service (“IRS”, “Service”) issued a memorandum providing guidance to collections employees regarding the proper criteria and procedures for rejecting offers in compromise under the “not in the best interest of the government” and “public policy” standards. Regarding rejections under the “not in the best interest of the government” standard, the IRS gives several examples, including offers from taxpayers with significant histories of noncompliance and situations where the taxpayer will likely not be able to make proposed deferred payments. Regarding rejections under the “public policy” standard, the IRS clarifies that this ground should be rare, but involve situations where there is a risk of public reaction adversely affecting future compliance; the Service’s examples include offers to individuals who refuse to comply with tax laws, or are likely involved in criminal activity. Taxpayers whose offers are rejected on these grounds retain their usual appeal rights.