The IRS may compromise any civil or criminal tax controversy as long as it has not been referred to the Department of Justice for prosecution or defense. However, a taxpayer facing both civil and criminal liabilities should enter compromise agreements with care including obtaining the advice of qualified criminal tax counsel. For example, case law illustrates that one taxpayer who thought that he was settling both his civil and criminal liability by paying a sum of money and pleading guilty to a criminal count, was to the taxpayer’s surprise and dismay sentenced to nine months’ imprisonment on the criminal liability.
To further complicate matters, the Department of Justice does not have authority to compromise a purely criminal tax case on its own accord. It may only compromise a criminal tax case that is connected with a civil tax liability. Moreover, the IRS has no authority to review an action of the Attorney General in accepting an offer in compromise in a case under his control on the merits of the case.