Difference Between the Tax Code and Tax Regulations re Offer in Compromise Law?

tax attorney Robert Schaller

Tax attorney Robert Schaller is frequently asked the question: “What is the difference between the Tax Code and Treasury regulations in the offer in compromise context?” The Key to understanding tax solutions to IRS back taxes is an understanding of the interplay between United States Tax Code and United States Treasury regulations. Each is examined below.

U.S. Tax Code

The most authoritative source of tax law is the Internal Revenue Code (the “Tax Code”). The Tax Code consists of bills passed by Congress and signed into law by the President of the United States. The Tax Code is codified in Title 26 of the United States Code. For Offer in Compromise purposes, the most significant Tax Code section is § 7122 – titled simply as “Compromises.”  This section is codified at 26 U.S.C. § 7122. For installment agreement purposes, the most significant Tax Code section is § 6159, codified at 26 U.S.C. § 6159. For innocent spouse relief, the most significant Tax Code section is § 6015, codified at 26 U.S.C. § 6015.

Treasury Regulations

Treasury regulations are the next most authoritative source of tax law. The Tax Code authorizes the Secretary of the Treasury to prescribe rules and regulations to implement the Tax Code’s provisions. 26 U.S.C. § 7805(a). Treasury regulations are not laws passed by Congress; instead, tax regulations are promulgated by the Secretary of the Treasury. Unless in conflict with the Tax Code, Treasury regulations have the same legal force as the Tax Code and enjoy a strong presumption of validity. Boulez v. C.I.R., 810 F.2d 209, 213 (D.C. Cir. 1987).

Taxpayers must comply with Treasury regulations unless they can demonstrate that the Treasury regulation in question is unreasonable and plainly inconsistent with the Tax Code. Boulez v. C.I.R., 810 F.2d 209, 214 (D.C. Cir. 1987). Treasury regulations are published in the Code of Federal Regulation or “C.F.R.”  Treasury regulations relating to Offer in Compromise are promulgated as authorized by 26 U.S.C. § 7122. The most significant regulations relating to Offers in Compromise are 26 C.F.R. § 300.3, 26 C.F.R. § 301.7122-1, and 26 C.F.R. § 601.203. The most significant regulation for installment agreements is 26 C.F.R. § 301.6159-1. The most significant regulations for Innocent Spouse Relief are 26 C.F.R. § 1.6015-1 thru § 1.6015-9.