B-112088, NOV. 21, 1967

B-112088: Nov 21, 1967

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INTERNAL REVENUE SERVICE CONCERNING PROCEDURE FOR CLOSING ACCOUNT OF TAXPAYER WHEN TAX DEBT IS COLLECTED BY OFFSET IN JUDGMENT GRANTED TAXPAYER. CLOSE THE ACCOUNT OF A TAXPAYER WHEN THE AMOUNT OF TAX DUE THE GOVERNMENT IS COLLECTED BY OFFSET IN A JUDGMENT GRANTED THE TAXPAYER AGAINST THE UNITED STATES. THE FACTS AND CIRCUMSTANCES GIVING RISE TO THE REQUEST ARE SET FORTH BELOW. INCLUDED IN THE GOVERNMENT'S JUDGMENT (COUNTERCLAIM) WAS THE AMOUNT OF $471. REPRESENTATIVES OF IRS MET WITH REPRESENTATIVES OF THIS OFFICE AND IT WAS AGREED THAT IRS WOULD REQUEST THAT WE RECONSIDER THE MATTER FROM AN ACCOUNTING STANDPOINT. THE BASIC ISSUE INVOLVED IS HOW DOES IRS CREDIT A TAXPAYER'S ACCOUNT FOR A TAX DEBT THAT HAS BEEN SATISFIED AS A RESULT OF ACTION TAKEN BY THE COURTS.

B-112088, NOV. 21, 1967

DEBTS DUE UNITED STATES - TAXES - SET OFF BY JUDGMENT DECISION TO COMMISSIONER, INTERNAL REVENUE SERVICE CONCERNING PROCEDURE FOR CLOSING ACCOUNT OF TAXPAYER WHEN TAX DEBT IS COLLECTED BY OFFSET IN JUDGMENT GRANTED TAXPAYER. WHERE A TAX DEBT HAS BEEN COLLECTED BY OFFSET UNDER A JUDGMENT GRANTED THE TAXPAYER AGAINST THE U.S. BUT THE IRS DID NOT DIRECTLY RECEIVE THE MONIES REPRESENTING THE TAX DEBT, THE IRS SHOULD CLOSE THE ACCOUNT BY MEANS OF AN ENTRY SHOWING THAT THE TAX DEBT HAS BEEN SATISFIED BY COURT JUDGMENT.

TO MR. COHEN:

LETTER DATED SEPTEMBER 1, 1967, FROM THE ACTING COMMISSIONER (REFERENCE CP: C: DA), REQUESTS ADVICE AS TO HOW THE INTERNAL REVENUE SERVICE (IRS) CAN, FROM AN ACCOUNTING STANDPOINT, CLOSE THE ACCOUNT OF A TAXPAYER WHEN THE AMOUNT OF TAX DUE THE GOVERNMENT IS COLLECTED BY OFFSET IN A JUDGMENT GRANTED THE TAXPAYER AGAINST THE UNITED STATES.

THE FACTS AND CIRCUMSTANCES GIVING RISE TO THE REQUEST ARE SET FORTH BELOW.

THE PROBLEM AROSE INCIDENT TO A JUDGMENT OF THE COURT OF CLAIMS ENTERED PURSUANT TO A STIPULATED AGREEMENT WITH UTILITY ELECTRONICS CORPORATION (CORPORATION). THE CASE INVOLVED THE CORPORATION, THE DEPARTMENT OF THE ARMY (ARMY), AND IRS. THE COURT HELD THAT PURSUANT TO THE AGREEMENT OF THE PARTIES, JUDGMENT BE ENTERED FOR THE CORPORATION FOR $2,463,722.48, AND FOR THE GOVERNMENT ON ITS COUNTERCLAIMS THE AMOUNT OF $2,393,772.48, SAID SUMS TO BE SET OFF AND A NET JUDGMENT ENTERED IN THE CORPORATION'S FAVOR IN THE AMOUNT OF $70,000. INCLUDED IN THE GOVERNMENT'S JUDGMENT (COUNTERCLAIM) WAS THE AMOUNT OF $471,444.48 REPRESENTING A CLAIM FOR TAXES BY IRS.

BY LETTER DATED NOVEMBER 17, 1966, THE ACTING COMMISSIONER REQUESTED A DECISION FROM US AS TO WHETHER THE ARMY WOULD BE REQUIRED TO TRANSFER CREDIT OF $471,444.48 TO IRS, TO ENABLE IRS TO CLOSE THE OUTSTANDING TAX ACCOUNTS OF THE CORPORATION. IN OUR DECISION OF APRIL 17, 1967, B-112088, WE ADVISED YOU (FOR THE REASONS SET FORTH THEREIN) THAT THE ARMY WOULD NOT BE REQUIRED TO TRANSFER ANY AMOUNTS TO IRS FOR APPLICATION TO THE TAXPAYER'S (CORPORATION) OUTSTANDING TAX INDEBTEDNESS.

SUBSEQUENT TO OUR DECISION OF APRIL 17, 1967, REPRESENTATIVES OF IRS MET WITH REPRESENTATIVES OF THIS OFFICE AND IT WAS AGREED THAT IRS WOULD REQUEST THAT WE RECONSIDER THE MATTER FROM AN ACCOUNTING STANDPOINT, THUS RESULTING IN THE ACTING COMMISSIONER'S PRESENT REQUEST.

THE BASIC ISSUE INVOLVED IS HOW DOES IRS CREDIT A TAXPAYER'S ACCOUNT FOR A TAX DEBT THAT HAS BEEN SATISFIED AS A RESULT OF ACTION TAKEN BY THE COURTS, WHEN, AS INDICATED IN THE ACTING COMMISSIONER'S LETTER, IRS CONSIDERS A TAXPAYER'S ACCOUNT AS OPEN UNTIL PAYMENT IS RECEIVED BY IRS OR THE ASSESSED TAX IS ABATED. THE ACTING COMMISSIONER STATES THAT IN THE COURT CASE REFERRED TO ABOVE THE AMOUNT OF THE TAX WAS PROPERLY ASSESSED AND THEREFORE ABATEMENT IS NOT APPROPRIATE; AND THAT SINCE IRS DID NOT DIRECTLY RECEIVE THE MONIES REPRESENTING THE AMOUNT OF THE TAX DUE, A CREDIT WAS NOT MADE TO THE TAXPAYER'S ACCOUNT FOR PAYMENT OF HIS TAX LIABILITY.

IT IS OUR VIEW THAT INASMUCH AS THE UNITED STATES (AS DISTINGUISHED FROM IRS) RECEIVED CREDIT FOR THE AMOUNT OF THE TAX DUE FROM THE CORPORATION BY WAY OF THE JUDGMENT, IRS SHOULD CLOSE THE ACCOUNT IN QUESTION BY MEANS OF AN ENTRY IN ITS RECORDS SHOWING THAT THE OUTSTANDING TAX INDEBTEDNESS WAS SATISFIED BY THE COURT JUDGMENT.

A SUGGESTION WAS MADE BY A REPRESENTATIVE OF IRS TO REPRESENTATIVES OF THIS OFFICE THAT UNDER THE EXISTING REVENUE ACCOUNT STRUCTURE, A CREDIT COULD BE MADE TO THE TAXPAYER'S ACCOUNT WITH AN OFFSETTING CHARGE TO THE REVENUE ACCOUNT FOR "TAXES COLLECTIBLE ALLOWANCES FOR SUBSTANTIATED PAYMENTS," AND THAT SUCH AN ACCOUNTING ENTRY WOULD CLOSE THE ACCOUNT IN QUESTION AND FULLY DISCLOSE THE NATURE OF THE TRANSACTION. WE UNDERSTAND THAT THIS ACCOUNTING TREATMENT WOULD BE ACCEPTABLE TO IRS PROVIDED WE OFFICIALLY ADVISE YOU THAT SUCH AN ENTRY COULD PROPERLY BE MADE IN IRS RECORDS.

ACCORDINGLY, YOU ARE ADVISED WE WOULD HAVE NO OBJECTION TO THE SUGGESTED ACCOUNTING PROCEDURE TO CLOSE THE ACCOUNT OF A TAXPAYER WHEN THE AMOUNT OF THE TAX DUE THE GOVERNMENT HAS BEEN COLLECTED BY OFFSET IN A JUDGMENT GRANTED THE TAXPAYER AGAINST THE UNITED STATES.