Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 19 - Settlements-compromises and Abatements of Tax, Penalty, or Interest › Rule 701-19.2 - Amounts Qualifying for Settlement

Current through Register Vol. 47, No. 3, July 24, 2024
To be eligible for settlement under Iowa Code section
				  421.5, the amount must be of
				  doubtful liability or doubtful collectability or must cause severe economic
				  hardship, or the settlement of the amount must promote effective tax
				  administration. The decision whether to accept a settlement amount will be
				  based on a taxpayer's facts and circumstances; verifiable documentation is
				  required for all grounds.
(1)
Doubtful collectability.
Doubt as to collectability may exist
				in any case where the taxpayer's assets and discretionary income may not
				satisfy the full amount of the liability after satisfying senior priority
				liabilities. An offer to settle based on doubt as to collectability may be
				considered acceptable if it is unlikely that the tax, penalty, and interest can
				be collected in full and the offer reasonably reflects the amount the
				department could collect through other means, including administrative and
				judicial collection remedies. This amount is the reasonable collection
				potential of a case. In determining the reasonable collection potential of a
				case, the department will take into account the taxpayer's verifiable
				reasonable basic living expenses. In some cases, the department may accept an
				offer of less than the reasonable collection potential of a case if there are
				special circumstances.
(2)
Severe economic hardship.
The department may settle where it
				determines that, although collection in full could be achieved, collection of
				the full amount would cause the taxpayer severe economic hardship. Severe
				economic hardship is defined as the inability to pay reasonable basic living
				expenses. An offer to settle based on economic hardship may be considered
				acceptable when, even though the tax, penalty, and interest could be collected
				in full, the amount offered reflects the amount the department can collect
				without causing the taxpayer severe economic hardship.
(3)
Doubtful liability.
A
				doubtful liability may exist where there is a significant doubt as to the
				existence or amount of the correct tax liability under the law. A doubtful
				liability does not exist where the liability has been established by a final
				court judgment or administrative ruling or final order of the department
				concerning the existence or amount of the liability. An offer to settle a
				doubtful liability may be considered acceptable if it reasonably reflects the
				likelihood the department could expect to collect through litigation. This
				analysis may include consideration of the hazards and costs of litigation that
				would be involved if the liability were litigated. The evaluation of the
				hazards and costs of litigation is not an exact science and is within the
				discretion of the department.
(4)
Promote effective tax administration.
The department may
				settle to promote effective tax administration where compelling public policy
				or equity considerations identified by the taxpayer provide a sufficient basis
				for settling the liability that is equitable under the particular facts and
				circumstances of the case. Settlements pursuant to this subrule may be
				justified only where, due to exceptional circumstances, collection of the full
				liability may undermine public confidence that the tax laws are being
				administered in a fair and equitable manner. The taxpayer will be expected to
				demonstrate circumstances that justify settlement even though a similarly
				situated taxpayer may have paid the liability in full. The department may
				settle cases where doing so will promote voluntary compliance with the law. The
				department may decline a settlement for reasons promoting effective tax
				administration if the settlement of the liability would undermine compliance by
				taxpayers with the tax laws.