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Court Rules that Plain English Doesn’t Count in IRS Offers in Compromise

May 4, 2012

A couple who signed an offer in compromise with the Internal Revenue Service learned the hard way that the Internal Revenue Code trumps plain English.

The IRS prevailed in a ruling by the Second Circuit Court of Appeals on Wednesday. The court decided that a married couple who signed an OIC in 2007 with the IRS to pay $2,000 on about $30,000 of their old tax debts could still lose out on the $2,831 they claimed the following tax season from the Earned Income Tax Credit, an Additional Child Tax Credit of $864, and a $900 economic stimulus check.

The IRS pointed out that in the OIC agreement signed by the couple, the IRS would “retain any refunds or credits that you may be entitled to receive for 2007 or for earlier tax years” and any “refunds you receive in 2008 for any overpayments you made toward tax year 2007 or toward earlier years,” according to the Journal of Accountancy.

The couple argued that the EITC, the ACTC and the economic stimulus check aren’t really refunds for overpayments of taxes. Instead they are refundable tax credits that don’t depend on a taxpayer actually overpaying their taxes, in the plain English meaning of the terms “overpayment” and “refund.”

The IRS countered that the Tax Code says that the amount of a refundable tax credit over a taxpayer’s liability “shall be considered an overpayment” and taxpayers are thereby entitled to a "refund."

The appeals court found for the IRS, pointing out that if taxpayers were to rely on the plain English meaning of the Tax Code, as opposed to the government meaning, that would cause unnecessary uncertainty.

That’s certainly reassuring, isn’t it?

Back in 2010, President Obama signed the Plain Writing Act, which requires the federal government, including the IRS, to write documents such as tax forms in plain English language (see New Law Requires IRS to Write Plainly). However, since the law applies only to communications with the public and not to laws or regulations, Congress is not required to write in plain English.

Which may explain a lot about the Internal Revenue Code.

Comments (3)
So let me get this right. They owed $30,000 to the government and actually paid $2000 and signed an agreement that said no refund in 2008. They knew this going in. Can you spell greedy.
Posted by eastcoast ea | Monday, May 07 2012 at 3:17PM ET
I think these people just wasted money trying to argue about a letter that they misread and meaning that they took out of context. The majority of IRS communications is written in plain English. Maybe we should dumb things down a little more for people that don't have critical thinking skills.
Posted by RChappin | Monday, May 07 2012 at 9:25AM ET
And Washington wonders why so many people outside the Beltway grow more frustrated in their dealings with the various Federal agencies?
Posted by nraacct | Monday, May 07 2012 at 8:20AM ET
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