David W. Trout v. Commissioner of Internal Revenue - In 1997, the taxpayer entered into an offer-in-compromise (OIC) with the IRS covering tax years 1989, 1990, 1991, and 1993. The OIC included a term that required the taxpayer to timely file and pay his taxes for the next five years.
The taxpayer filed his 1996 tax return late and then failed to file his 1998 and 1999 returns.
Judge Holmes ruled that the an Offer in Compromise is a contract like any other contract to which the common law contract rules apply:
[A]pplying general principles of the federal common law of contracts, P’s OIC agreement made timely filing and payment of tax express conditions. P was not powerless to avoid the breach, and the failure to reinstate his OIC caused no forfeiture, so R did not abuse his discretion in finding P had breached the OIC and determining to proceed with collection.
Word to the Wise: If you are fortunate enough to have the IRS accept an Offer allowing you to pay less than the total amount of your IRS debt, do not blow it by failing to comply with the federal tax laws.
All OICs impose as a condition of acceptance a requirement that the taxpayer remain completely and utterly compliant with the federal tax laws for the five tax years suceeding the date of acceptance of the offer. Even a technical violation of the law can result in a breach of the Offer and allow the IRS to collect the full debt.
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