Tax Attorney Reports Offer in Compromise Allows IRS to Retain Stimulus Rebates and Refundable Credits

The taxpayers, attempting to settle taxes with the IRS, signed standard Offer in Compromise (“OIC”) forms, including IRS Form 656, the required form for OIC filers.  The OIC was accepted by the IRS in 2007.  For the 2007 year and on the taxpayer’s 2007 return, filed in 2008, the taxpayer’s claimed an earned income tax credit, a child tax credit.  Additionally, in 2008, the taxpayer’s were authorized an economic stimulus payment.  Under the OIC program, the IRS takes into account “additional consideration” as increases to the OIC amount.  Generally, the IRS will retain any refunds due to the taxpayer in the calendar year in which the IRS accepts the OIC.  As a result, the IRS was allowed to retain the refundable EITC and additional child tax credits as “additional consideration” as they were related to the 2007 tax year.  However, because the rebate was an advance on the 2008 tax year, the taxpayers were allowed to retain the stimulus payment.

See Sarmiento v. United States, Nos. Nos. 11–3752 (Lead), 11–4495(XAP), (2d Cir 2012)