Field Service Advice 200130043, June 25, 2001
CCH IRS Letter Rulings Report No. 1274, 08-01-01
IRS REF : Symbol: CC:PA:CBS:Br2

Uniform Issue List Information:

UIL No. 7122.03-00

Compromises

- Breach

[Code Sec. 7122 ]

INTERNAL REVENUE SERVICE NATIONAL OFFICE FIELD SERVICE ADVICE

MEMORANDUM FOR ASSOCIATE AREA COUNSEL ( SBSE ), AREA 4, DETROIT , MICHIGAN

FROM: Lawrence H. Schattner, Chief, Branch 2 (Collection, Bankruptcy & Summonses)

SUBJECT: Default of Offer-in-Compromise

This Chief Counsel Advice responds to your memorandum dated May 8, 2001. In accordance with I.R.C. §6110(k)(3) , this Chief Counsel Advice should not be cited as precedent.

ISSUES

Whether the Internal Revenue Service ("Service") may unilaterally default a joint offer in compromise when Taxpayer-Husband breached his obligations under a separate but related offer in compromise on the basis of an oral agreement tying the two offers together.

CONCLUSIONS

No. Treasury Regulations specifically require that offers in compromise be reduced to writing and thus cannot be altered by an oral agreement.

FACTS

A joint offer in compromise was accepted by the Service to resolve Taxpayers' outstanding income tax liabilities. The notice of acceptance stated, "our acceptance is subject to the terms and conditions on the enclosed form 656, Offer in Compromise." Taxpayers fulfilled their obligations under the offer in compromise by paying the total due plus interest.

The Service also accepted Taxpayer-Husband's individual offer in compromise to resolve his outstanding employment tax liabilities. The notice of acceptance contained the same language as above. Taxpayer-Husband never made any payments under his offer in compromise and the Service defaulted both compromise agreements.

According to your memo, it was the practice of the local offer in compromise group to inform taxpayers orally that individual and joint agreements were tied together. Your memo does not state if Taxpayers in this case were specifically told that default of one offer would result in default of the other and whether Taxpayers agreed. Your memo also states that current practice is to make agreements tying the two offers together in writing.

LAW AND ANALYSIS

The Nature of an Offer in Compromise

An offer in compromise is a statutory creation. I.R.C. section 7122(a) states:

The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

I.R.C. §7122(a) . Thus, any offer in compromise is to be strictly construed according to the statutory requirements. Botany Worsted Mills v. United States, 278 U.S. 282 (1929) [1 USTC ¶348 ]; Klien v. Commissioner, 899 F.2d 1149 (11th Cir. 1990) [90-1 USTC ¶50,251 ]; Bowling v. United States, 510 F.2d 112 (5th Cir. 1975) [75-1 USTC ¶9333 ];

It has also been said that an offer in compromise is a contract and is subject to the general rules governing contracts. United States v. Feinberg, 372 F.2d 352 (3rd Cir. 1967) [67-1 USTC ¶9176 ]; United States v. Lane, 303 F.2d 1 (5th Cir. 1962) [62-1 USTC ¶9467 ]; Kurio v. United States, 429 F.Supp. 42 (S.D. Tex. 1970) [71-1 USTC ¶9112 ]. However, the rules of contracts cannot abrogate the statutory requirements governing offers in compromise. Bowling, 510 F.2d at 113 [75-1 USTC ¶9333 ].

Requirement of a Writing

Temporary Treasury Regulation section 301.7122 -1T(c)(1) requires that all offers in compromise be submitted in writing on forms prescribed by the Service.¹ In accordance with this regulation the Service now requires that all offers must be submitted on Form 656. IRM 5.8.1.4(1)

In Boulez v. Commissioner, 810 F.2d 209 (D.C. Cir. 1987) [87-1 USTC ¶9177 ] a taxpayer challenged the Treasury regulation's writing requirement, arguing that he had a binding oral compromise agreement. Pierre Boulez ran afoul of U.S. tax law by failing to include certain income on his tax returns. Id. at 210. After extensive negotiations, Boulez reached an oral compromise agreement with the Service. Id. In an unrelated audit, the Service discovered more tax deficiencies and issued a notice of deficiency. Id. at 211. Boulez argued that the oral agreement settled all of his tax liabilities, including these newly discovered deficiencies, and was binding on the Service. Id. The court of appeals disagreed and found that Treasury Regulation section 301.7122-1(d) (1960) required an offer in compromise to be set out in writing and that this requirement was "entirely reasonable, and a wholly permissible interpretation of Section 7122 ." Boulez, 810 F.2d at 214 [87-1 USTC ¶9177 ]. In addition the court stated that the writing requirement could not simply be overlooked as it is "a fundamental tenet of formalizing agreements." Id. at 216. Thus, because the agreement did not conform to statutory requirements it was not binding on the Service.

The holding of Boulez was followed in In re Aberl, 159 B.R. 792 (Bankr. N.D. Ohio 1993), aff'd, 175 B.R. 915 (N.D. Ohio 1994), aff'd, 78 F.2d 241 (6th Cir. Ohio 1996). The Aberl court refused to find that oral negotiations between a taxpayer and the Service constituted an offer in compromise. "This Court agrees...that '[Treas. Reg. §301.7122-1(d) ], which requires that all compromises be reduced to writing, has the force and effect of law, and that the [ IRS ] lacked authority to waive it." In re Aberl, 159 B.R. at 799, citing Boulez, 810 F.2d at 211 [87-1 USTC ¶9177 ] (alteration in original) (citations omitted).

The issue you have presented, however, deals with an oral term within a written offer in compromise rather than an entirely oral agreement. In Keating v. United States , 794 F.Supp. 888 (D. Neb. 1992) [92-2 USTC ¶50,413 ] the district court concluded that an oral agreement could not supersede the written terms of Form 656. The Keatings submitted a written offer in compromise on Form 656, which expressly informed taxpayers that the United States would retain any tax refunds that arose within the period of the offer. Id. at 889. The Keatings then negotiated with the Service to increase the amount of their offer with the oral understanding that the Service would refund any tax overpayments, notwithstanding the language of Form 656. Id. The Service kept the Keatings' refund and applied it to their tax liability. Id. at 888.

The District Court stated:

Even assuming that an oral agreement existed between the parties that attempted to supersede Form 656, an oral agreement with the Internal Revenue Service with respect to federal income tax liability cannot bind the government...The Internal Revenue Code and the Treasury regulations specifically require a written offer and acceptance of an offer in compromise. (citations omitted)

Id. at 891. Thus, according to the statutory scheme and regulations governing offers in compromise, an oral term cannot be added to a written offer² But see, Engelken v. United States , 823 F.Supp. 845 (D. Colo. 1993) (denying summary judgment because plaintiffs should have been allowed to show an oral modification to their offer in compromise). Without a contract term tying the two offers together, they must each stand alone. The joint offer in compromise has been fully paid. Assuming Taxpayers have complied with all of the filing and payment requirements of the I.R.C. for the five year period following acceptance of their offer as required by condition (d) of Form 656 (Rev. 9-93), the liability has been extinguished. See, Temp. Treas. Reg. §301.7122-1T(d)(5); Treas. Reg. §301.7122-1(c) (1960).

Contract Rules Governing Oral Terms

It is our position that I.R.C. section 7122(a) and the regulations thereunder govern the requirements of an offer in compromise and that pursuant to these authorities all the terms of the offer and acceptance of the offer must be in writing. Even under general contract principles, we believe the conclusion would be the same

At the outset, in considering an offer in compromise a court should look to "the rules applicable to contracts generally." Lane, 303 F.2d at 4 [62-1 USTC ¶9467 ]; see also, United States v. Wainer, 211 F.2d 669, 673 (7th Cir. 1954) [54-1 USTC ¶49,032 ] (applying common law when analyzing a compromise agreement with the Service).

The parole evidence rule governs when testimony will be allowed to prove an oral term of a written contract. The general rule is that evidence of a prior or contemporaneous agreement, not included in an integrated writing, is not admissible to prove the existence of that agreement. Restatement (Second) of Contracts §§215 , 216 (1981); Samuel Williston, 4 Williston on Contracts §631 (3d ed. 1961).³ Parole evidence is admissible to prove: (1) that the writing is not integrated; (2) the writing is only partially integrated; (3) the meaning of the writing; (4) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (5) grounds for recission, reformation, specific performance, or other remedy. Restatement (Second) of Contracts §214 (1981). Thus, parole evidence may be used to show that an agreement is not integrated. If the Service were able to prove that Form 656 is not integrated then it could introduce evidence of a contemporaneous oral agreement to tie the two offers in compromise together.

An agreement is determined to be integrated when the writing constitutes "a final expression of one or more terms of an agreement." Restatement (Second) of Contracts §209 (1981). Whether an agreement is integrated is to be determined by the court, however, written agreements are presumed to be integrated. Id. ; Samuel Williston, 4 Williston on Contracts §633 (3d ed. 1961). This presumption is particularly strong when the parties use a standardized agreement. Restatement (Second) of Contracts §211 (1981). Even if an agreement is not fully integrated courts generally will not allow parole evidence of an additional term if that term would normally be included in that type of agreement. Arthur Linton Corbin, 3 Corbin on Contracts §583 (1960).

A further hazard for the Service is the rule that "in choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the part who supplies the words or from whom a writing otherwise proceeds." Restatement (Second) of Contracts §206 (1981).⁴ A court is particularly likely to construe a contract against the government as the drafting party. Restatement (Second) of Contracts §207 cmt. a (1981).

The use of parole evidence is decided on a case by case basis by the courts, however, given the rules of contracts as discussed above it is unlikely that the Service would prevail in proving that Form 656 is an unintegrated agreement and that evidence of an oral agreement should be admitted.

This writing may contain privileged information. Any unauthorized disclosure of this writing may have an adverse effect on privileges, such as the attorney client privilege. If disclosure becomes necessary, please contact this office for our views.

If you have any further questions please contact the attorney assigned to this matter at (202) 622-3620 .

¹ Acceptances must also be in writing. Temp. Treas. Reg. §301.7122-1T(d)(1). These writing requirements were also in effect when the offers at issue were accepted. See, Treas. Reg. §301.7122-1(d) (1960).

² It does not matter that the Keating court dealt with an attempt to supersede a written term of the offer whereas this case deals with an attempt to add a consistent term because the analysis under the statutory scheme is the same. Oral agreements are not enforceable.

³ Michigan law is in accord with the common law on parole evidence. NAG Enterprise, Inc. v. All State Industries, Inc. 407 Mich. 407 (1979); UAW-GM Human Resource Center v. KSL Recreation Corp., 228 Mich. App. 486 (1998).

⁴ Michigan law is in accord. Hanley v. Porter, 238 Mich. 617 (1927); Stark v. Kent Products, Inc. 62 Mich. App. 546 (1975); Elby v. Livernois Eng'g Co., 37 Mich. App.

 

[2002-1 USTC ¶50,173] Michael J. Roberts, Plaintiff v. United States of America , Defendant

U.S. District Court, East. Dist. Mo. , East. Div., 4:99CV489 ERW, 12/10/2001 , Previous decisions in this same case, 99-2 USTC ¶50,959 , 2001-1 USTC ¶50,306


MEMORANDUM AND ORDER

WEBBER, District Judge:

This matter is before the Court on Defendant's Motion to Dismiss [doc. #46] and Defendant's Motion for Summary Judgment [doc. #46]. Plaintiff has filed his Acquiescence in Defendant's Limited Motion to Dismiss, indicating that he consents to the motion to dismiss filed by the Government. Therefore, Plaintiff's claim for tax refund relative to the 1993 tax year will be dismissed based on the fact that Plaintiff's claim for a refund of federal income taxes for the 1993 taxable year is time-barred under §6511 of the Internal Revenue Code.

I. Statement of Facts.

A. Circumstances Leading up to the Offer in Compromise.

Plaintiff Michael J. Roberts, the plaintiff and taxpayer in this case, resides at 10428 Jade Forest Drive in St. Louis , Missouri and has lived there since 1991. Before that, he lived at 10627 Tesshire, St. Louis , Missouri . In 1984 or 1985, Plaintiff started two businesses: (1) M.J. Roberts Construction, which provided demolition and excavation services, and (2) Roberts Disposal, Inc., a construction debris trash company. Both of these were formed as sub-chapter S-Corporations, and were located at 10627 Tesshire, St. Louis , Missouri . Plaintiff was the president and majority stockholder in both businesses, and his brother, Thomas E. Roberts, was an employee. Arnold J. Lohbeck, a certified public accountant in Fenton, prepared corporate income tax returns (Forms 1120) for M.J. Roberts Construction, Inc. He has known Plaintiff since he was sixteen years old, and has prepared Plaintiff's personal income tax returns (Forms 1040) since the 1983 taxable year. Plaintiff was divorced from his former wife, Diane, in 1988.

By 1989, both of Plaintiff's businesses, according to Plaintiff, "were on real shaky ground," and went out of business around 1990. On January 7, 1992, IRS Revenue Agent Donna R. Mecey sent Plaintiff a letter informing him that his 1989 federal income tax return had been selected for examination by the Internal Revenue Service. After Plaintiff received the January 7, 1992 IRS letter, he asked his CPA, Mr. Lohbeck, to help with the IRS audit. Lohbeck then prepared Plaintiff's 1989, 1990 and 1991 federal income tax returns. The first page of Plaintiff's 1989 tax return shows that Agent Mecey received his 1989 return on May 4, 1992. The IRS subsequently received Plaintiff's 1990 and 1991 tax returns on September 2, 1993. Following her examination of Plaintiff's 1989-1991 tax returns, Agent Mecey prepared a Revenue Agent Report (RAR) which proposed the assessment of the following income tax deficiencies against Plaintiff: for the taxable year 1989, a proposed tax deficiency of $25,067; for the taxable year 1990, a proposed tax deficiency of $53,903; for the taxable year 1991, a proposed tax deficiency of $1,350. Together with statutory interest, the amounts which the IRS determined Plaintiff owed for each of the taxable years under examination were: $34,686 (1989), $68,089 (1990), and $1,521 (1991). During the IRS examination of Plaintiffs' 1989-1991 federal income tax returns, CPA Lohbeck and attorney Charles M. Locke represented Plaintiff under a "Power of Attorney and Declaration of Representative" ( IRS Form 2848). This "Power of Attorney" form covered Plaintiff's 1989-1993 federal income tax liabilities. Using the authority given him under the "Power of Attorney" form, Lohbeck signed the RAR prepared by Agent Mecey on November 17, 1993 to agree with her findings that Plaintiff was liable for unpaid federal income taxes and interest for the taxable years 1989-1991. Before signing the RAR, Lohbeck discussed the RAR with Plaintiff. By signing this RAR, Lohbeck waived Plaintiff's right to contest the proposed 1989-1991 income tax deficiencies with the United States Tax Court and consented to the immediate assessment and collection of the deficiencies. On the following dates, a delegate of the Secretary of the Treasury properly and timely made assessments against Plaintiff for unpaid federal income taxes and statutory interest:

                                        Amount of     Unpaid Balance of

                           Date of     Assessment       Accruals as of

Taxable Period Ending     Assessment        1          
November 1, 2001

12/31/89 ................  10/05/92   $ 24,585.79(1)

                                         1,809.40(2)

                                         1,008.30(3)

                                         2,599.92(4)

                           12/20/93     25,067.00(5)

                                         9,733.04(4)

                                         1,512.45(2)

                                         1,336.09(5)

                           06/09/97      2,305.15(3)

                                                          $32,214.81

12/31/90 ................  12/20/93   $ 54,903.00(5)

                                        13,407.43(4)

                           05/09/94      1,445.25(3)

                           05/13/96      7,312.00(5)

                           04/28/97     10,323,26(3)

                                        41,293.00(5)

                                                          $55,797.81

12/31/91 ................  12/27/93   $  2,873.00(5)

                                           377.78(4)

                           12/20/93      1,350.00(5)

                                           174.59(4)

                           04/13/98      3,128.00(5)

                                                          $ 2,703.43

12/31/92 ................   3/14/94   $ 78,228.00(1)

                                         2,859.21(6)

                                         9,038.79(2)

                                         3,682.47(3)

                                         4,678,67(4)

                           04/13/98      2,859.21(6)

                                         9,038.79(2)

                                        66,954.00(5)

                                                           68,947.68

The IRS also assessed a $9,953.75 penalty against Plaintiff under 26 U.S.C. §6672 of the Internal Revenue Code in connection with Plaintiff's wilful failure, as a person responsible for withholding, collecting and paying over to the IRS the federal income and social security taxes which were withheld from the wages of the employees of Plaintiff's company, Roberts Disposal, Inc., to pay over the withheld taxes for the fourth quarter of 1989 to the IRS . ²

B. Plaintiff Enters into the Offer in Compromise.

On or about August 24, 1994 , Plaintiff submitted an Offer in Compromise (the "settlement agreement" or "OIC") (Form 656) to the IRS with respect to his unpaid federal income tax liabilities for 1989-1993 and a Trust Refund Recovery Penalty (also referred to as a "100-percent penalty" or "Section 6672 penalty") with respect to Roberts Disposal, Inc., for the taxable quarter ending December 31, 1989 . Plaintiff's OIC provided, in pertinent part, that he was to pay $30,000 to the IRS to compromise his 1989-1993 federal income tax liabilities and the Trust Fund Recovery Penalty (TFRP) assessed against him. The OIC specifically provided that the $30,000 was to be paid within sixty days following notice of its acceptance by the IRS . Paragraph 6 of the OIC stated that "I/we submit this offer for the reason(s) checked below:"

[X] Doubt as to collectibility ("I can't pay.").

As additional consideration for the Government's acceptance of the OIC, Plaintiff agreed, in a collateral agreement to the OIC, to waive the benefit of any net capital losses that he might be entitled to claim in connection with the failure, demise or sale of M.J. Roberts Construction, Inc., and Roberts Disposal, Inc. Paragraph (d) of the "Terms and Conditions" printed on the reverse side of the Form 656 OIC signed by Roberts provided as follows: "I/we will comply with all provisions of the Internal Revenue Code relating to my filing my/our returns and paying my/our required taxes for five (5) years from the date IRS accepts the offer." Paragraph (o) of the "Terms and Conditions" printed on the reverse side of the Form 656 OIC signed by Plaintiff provided as follows:

If I/we fail to meet any of the terms and conditions of the offer, the offer is in default, and IRS may:

(i) immediately file suit to collect the entire unpaid balance of the offer;

(ii) immediately file suit to collect an amount equal to the original amount of the tax liability as liquidated damages, minus any payments already received under the terms of this offer;

(iii) disregard the amount of the offer and apply all amounts already paid under the offer against the original amount of tax liability;

(iv) file suit or levy to collect the original amount of the tax liability, without further notice of any kind.

IRS will continue to add interest, as required by section 6621 of the Internal Revenue Code, on the amount IRS determines is due after default. . . .

At the time he submitted the OIC on August 24, 1994, Plaintiff was represented by his attorney, Mr. Locke. Plaintiff paid $30,000 to the IRS at the time he submitted the OIC in August 24, 1994. The $30,000 was a loan from his brother's company, Commercial Development Company, Inc. By letter dated September 28, 1994, the IRS notified Plaintiff that the OIC had been accepted. This letter stated, in pertinent part, that "We have accepted the offer in compromise (Form 656) you submitted, subject to the terms and conditions outlined in the enclosed document(s). These terms including filing and paying all taxes due for the next five years." When asked at his deposition about the significance or importance to him of the September 28, 1994 IRS letter accepting the OIC, Plaintiff stated that he had "to pay taxes on time over the next five years and forfeit any refunds for M.J. Roberts Construction or Roberts Disposal."

C. Plaintiff's Payment of his 1995 Tax Return.

Plaintiff obtained two extensions of time to file his 1995 U.S. Individual Income Tax Return (Form 1040), prepared by CPA Ronald J. Kanterman of the accounting firm of Brown, Smith & Wallace LLC. Plaintiff signed his 1995 income tax return on October 15, 1996. Plaintiff's 1995 federal income tax return reported total income of $726,902.00. This included a salary of $81,923 from Commercial Development Company, Inc., business income of $23,204, capital gain of $479,292, and $137,214 from "rental real estate, royalties, partnerships, S corporations, trusts, etc." Plaintiff's 1995 Form 1040 also reported that he underpaid his federal income tax liabilities by $246,254. Plaintiff testified that he was aware of this underpayment when he signed his 1995 tax return on October 15, 1996. Plaintiff also testified that he was concerned about the $246,254 tax liability when he signed his 1995 tax return because "[a]t the time I don't believe we had money to pay that." When asked why he was unable to pay his 1995 tax liability, Plaintiff stated that he though "it was invested in other projects."

Prior to signing his 1995 Form 1040, Plaintiff discussed with his accountant, Ronald Kanterman, the extent of his income tax liability for the 1995 taxable year. Kanterman was aware of the amount of Plaintiff's 1995 tax liability at least thirty days prior to October 15, 1996, the date on which Plaintiff signed his 1995 tax return. Kanterman was also aware of the OIC which Plaintiff entered into with the IRS , and that the OIC required Plaintiff to file his returns and pay his taxes for five years from the date the OIC was accepted by the IRS . At the time Plaintiff signed his Form 1040 for 1995, he told Kanterman that he would be unable to pay the $246,000 tax liability shown as due and owing on that return. Plaintiff's 1040 shows that he paid no estimated tax payments for the 1995 taxable year, despite Kanterman having discussed Plaintiff's need to do so. Plaintiff told Kanterman that he could not afford to make the estimated payments.

The Government states that Kanterman explained the reasons for delaying the filing of Plaintiff's 1995 tax return until October 15, 1996, the maximum time permitted by law. The Government contends that Kanterman stated the first reason for the delay was that Plaintiff lacked the financial resources to pay his 1995 tax liability in full. However, Plaintiff disputes this contention, stating that Kanterman stated that Plaintiff needed the six month extension because "the company was short of money at the time. . . ." Plaintiff's Response to Defendant's Statement of Uncontroverted Facts ¶37. This, according to Plaintiff, means that Plaintiff did not have the cash on hand to pay the bill, but could have borrowed the money to do so. Plaintiff states in his Declaration, attached as Plaintiff's Exhibit 2 to Plaintiffs opposition to Defendant's Motion for Summary Judgment, that although he lacked "any appreciable amount of cash as of October 15, 1996, I did have the capacity to borrow sums at this time. As of January 1, 1997 , I stood ready, willing, and able to pay the IRS the amount shown as due upon my 1995 federal tax return after all offsets were given for the carryback of my 1996 net operating losses. Id. The other reasons that Kanterman expressed when explaining the reason for the delay in filing the 1995 return are not contested, and are (2) the unavailability of records and the need to complete tax returns for other entities; and (3) Kanterman's concern that his firm would not be paid its accounting fees.

Kanterman also prepared the 1996 Form 1040 for Roberts and his wife, filed with the IRS on or about January 8, 1997. Kanterman testified that the reason for filing the 1996 return early was that "[t]here was an amount due on the 1995 return to the IRS that was known by the taxpayer that there would be a loss for 1996, 1996 taxable year that would reduce the amount due for the 1995 year. It was the taxpayer's wish that we complete the return as fast as possible so that the taxpayer could make payment to the IRS vis-a-vis the net operating loss carryback." Plaintiff received notice and demand for payment of his 1995 federal income tax liabilities from the IRS prior to the preparation and filing of the 1996 return in January of 1996. Plaintiff's 1996 return indicated a negative total income of $485,087 and a negative adjusted gross income of $488,159. Plaintiff's net operating loss for the 1996 tax year was reported on an Application for Tentative Refund (Form 1045) which was filed simultaneously with Plaintiff's 1996 Form 1040, and carried back, in order, to the 1993, 1994 and 1995 tax years.

Paragraphs 42 and 43 of Defendant's Statement of Uncontroverted Facts are not disputed by Plaintiff, but he attempts to clarify them in his response. Paragraphs 42 and 43 read:

42. Although plaintiff carried back a net operating loss of nearly half a million dollars from the 1996 tax year to the 1993, 1994 and 1995 tax years, he remained indebted to the United States (according to his accountant's calculations) for unpaid 1995 federal income taxes in the amount of $129,539.00 after the 1996 loss had been carried back to the preceding three taxable years.

43. Even after the income tax refunds generated by the carryback of the 1996 net operating loss to the 1993-1995 tax years were applied to Robert's 1995 tax liability, an unpaid balance of $101,076 remained for that taxable year.

Plaintiff states the following to clarify these two statements:

In January and, again, in April of 1997, Plaintiff made two separate Form 1045 filings carrying back losses from 1996 to the three preceding tax years--i.e., 1993, 1994, and 1995--as required by the Internal Revenue Code §172 ³. Both of these filings separately generated credits and offsets against the 1995 tax liability as originally reported by Plaintiff. Also, Plaintiff's 1996 individual income tax return showed a refund due which constitutes a third source of offsets against Plaintiff's 1995 tax liability. A reading of [Defendant's] paragraphs 42 and 43 . . . , when read separated [sic], appear to contradict each other. Also, they do not clearly indicate that Mr. Kanterman is giving subtotals in the process of determining Mr. Robert's 1995 tax liability after application of all credits and offsets generated by his 1996 losses. To recap, there were three sources of credits and offsets for use to decrease the 1995 tax liability generated by Mr. Roberts' 1996 individual income tax return: (a) January 1997 form 1045 tentative carryback application, (b) April 1997 form 1045 tentative carryback application and (c) the tax refund reported on the 1996 return itself (as originally filed in January 1997 and amended in April of 1997). Although not stated (which leads to confusion), paragraph 42 of Defendant's Statement of Material Facts is a recitation by Mr. Kanterman of a subtotal of his calculation of the amount due by Mr. Roberts for his 1995 tax year after application of the credits and offsets made available by the first named source of said credits and offsets: i.e., the January 1997 form 1045 tentative carryback application. This is just one of three sources for credits and offsets against Mr. Robert's 1995 tax liability. Paragraph 43 of Defendant's Statement of Material Facts is again a recitation by Mr. Kanterman of a second subtotal of his calculation of the amount due by Mr. Roberts for his 1995 tax return after application of both the first and second named sources of said credits: i.e., both the January and April 1997 form 1045 tentative carryback applications. Paragraphs 42 and 43 do not clearly indicated [sic] their status as merely subtotals, not final tabulations. Paragraph 46 of Defendant's Statement of Material Facts gives Kanterman's final calculation of Roberts' 1995 tax liability after application of the three sources of offsets and credits generated by Roberts' 1996 tax losses: $61,682.00.

Plaintiff's Response to Defendant's Statement of Material Facts §42-43.

By letter dated April 4, 1997, the IRS notified Plaintiff that he had not complied with the terms of the OIC, and "therefore your offer is declared in default and the arrangements to compromise the liability are terminated." In April of 1997, Plaintiff filed an amended 1996 federal income tax return