Filipowski v. Commissioner, No. 25-11382 (11th Cir. 2025), September 2, 2026

For tax professionals representing clients with significant tax delinquencies, the Offer-in-Compromise (OIC) program under Internal Revenue Code (IRC) Section 7122 represents a crucial collection alternative. However, the program is not a guaranteed escape route for taxpayers, especially when liabilities stem from aggressive tax-avoidance schemes. In Filipowski v. Commissioner, the United States Court of Appeals for the Eleventh Circuit provided a stark reminder that the Internal Revenue Service (IRS) possesses broad discretion to reject settlements on public policy grounds, even when a taxpayer’s assets are demonstrably insufficient to pay the full debt.

This decision highlights the critical intersection of tax collection, public disclosure, and the preservation of voluntary compliance. It serves as an essential case study for Certified Public Accountants (CPAs) and Enrolled Agents (EAs) on the limits of collection alternatives in the face of tax shelter liabilities and a history of noncompliance.

Facts of the Case and the Origin of the Tax Debt

The petitioner, Andrew J. Filipowski, was a highly successful tech entrepreneur who founded Platinum Technology, Inc. (“Platinum”) in 1987. Platinum grew to reach $1 billion in revenue, becoming the eighth-largest computer software company globally, before Filipowski, serving as its president and CEO, sold the company for $3.5 billion in 1999. This sale generated approximately $110 million in wage and transaction-related income for Filipowski during the 1999 tax year.

To offset this substantial income, Filipowski participated in an aggressive tax shelter program, transferring investments to a partnership named New Millennium Trading, LLC, and claiming offsetting losses of $110 million on his 1999 individual income tax return. Following subsequent audits and litigation, the U.S. Tax Court determined that New Millennium Trading, LLC was a “sham partnership” that was “created solely for tax avoidance purposes”. Consequently, the IRS disallowed the claimed losses and assessed Filipowski’s individual tax liability.

In February 2018, the IRS issued a statutory notice of deficiency indicating that Filipowski owed $32.5 million in underlying tax liability, plus a $13 million accuracy-related penalty under Section 6662, and $65.6 million in statutory interest. Filipowski did not challenge this notice of deficiency or the underlying liability in the Tax Court at that time. Aside from a minor application of approximately $21,000 in accrued tax credits from prior years, he made no payments toward this mounting debt. By 2021, with accumulating interest, his outstanding 1999 tax liability had ballooned to approximately $140 million.

The Collection Due Process Hearing and Request for Relief

Following Filipowski’s nonpayment, the IRS issued a notice of intent to levy, triggering a taxpayer’s right to a Collection Due Process (CDP) hearing under 26 U.S.C. § 6330. Filipowski requested a hearing, indicating an inability to pay the outstanding balance and expressing his intent to submit an OIC as a collection alternative under Section 6330(c)(2)(A)(iii).

During the CDP hearing, Filipowski’s representative, Adam Fayne, disclosed that while the taxpayer was “very wealthy at one time,” he had lost most of his wealth over the years. However, financial disclosures revealed complex assets and cash flows:

A Roth IRA valued at approximately $3.4 million.
An annual salary drawing of up to $300,000 permitted by a creditor trust (the DePasquale Trust).
Gross annual income of approximately $200,000.
Approximately $90,000 in cash.
Monthly living expenses reported at a staggering $34,500.

In May 2021, Filipowski formally submitted an OIC proposing to settle the $140 million tax liability for $1.5 million. The payment terms proposed were $1,000 per month for twenty-three months, with the remaining balance of $1.477 million due as a lump-sum at the conclusion of the twenty-three-month period.

The IRS Collections Investigation and Rejection

The OIC was forwarded to the IRS’s Collections department to perform a financial analysis and determine the taxpayer’s Reasonable Collection Potential (RCP). The Collections investigation revealed several critical facts that raised administrative and public policy concerns:

The DePasquale Trust Arrangement: The trust was formed by Thomas DePasquale, a former business colleague of Filipowski. DePasquale had purchased several outstanding bank judgments against Filipowski “for pennies on the dollar”. Collections concluded that the DePasquale Trust operated as a sham designed to shield Filipowski’s assets and income from federal tax collection activity while allowing him to maintain an opulent lifestyle.
Filing Noncompliance: Collections discovered that Filipowski had failed to timely file his federal income tax returns for the 2015 through 2018 tax years, only doing so belatedly after direct IRS prompting.
Undisclosed and Foreign Assets: Investigation identified a Canadian investment account valued at $1,000 and Coinbase stock valued at under $4,000, which Collections initially characterized as undisclosed assets. (The IRS later corrected its administrative record regarding the Coinbase stock characterization).

Collections calculated Filipowski’s RCP at $5.9 million, consisting of $5.3 million in net asset equity and $569,000 in future income value. Despite recognizing that the RCP was far below the $140 million liability—indicating that full collection was unlikely—Collections recommended rejecting the OIC on public policy grounds, noting that “acceptance would be detrimental to the interests of fair tax administration”.

The matter was forwarded to an IRS Appeals Officer for final determination. Although Filipowski’s representative disputed the RCP calculations and disclosed that Filipowski had recently been diagnosed with Parkinson’s disease, he did not propose alternative collection terms. The Appeals Officer subsequently issued a notice of determination sustaining the levy and rejecting the OIC on public policy grounds, concluding that “acceptance of [Filipowski’s] offer would have a negative impact on compliance by the general public”.

Statutory and Regulatory Framework for Public Policy Rejections

To understand the court’s affirmation, tax professionals must analyze the statutory and regulatory guidelines governing OICs. Under 26 U.S.C. § 7122(a), the Secretary of the Treasury (and by extension, the IRS) “may compromise any civil or criminal case arising under the internal revenue laws”. Code Section 7122(d) mandates that the IRS prescribe guidelines to determine whether an OIC is adequate and should be accepted.

These guidelines, promulgated under Treasury Regulation § 301.7122-1(b), set forth three exclusive grounds for compromising a tax liability:

Doubt as to liability.
Doubt as to collectibility.
Promotion of effective tax administration (ETA).

Under the ETA ground, the IRS may compromise a tax liability where collection of the full liability would cause “economic hardship” or where “compelling public policy or equity considerations” exist. However, this authority is strictly limited by Treasury Regulation § 301.7122-1(b)(3)(iii), which mandates:

“No compromise to promote effective tax administration may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws.”

Additionally, Revenue Procedure 2003-71, Section 6.03, clarifies that the IRS “may take into account public policy and tax administration concerns in determining whether an offer to compromise is acceptable”.

The Internal Revenue Manual (IRM) instructs employees that public policy rejections should be “rare”. Under IRM 5.8.7.7.2(2), a public policy rejection is warranted when “public reaction to the acceptance of [an] offer could be so negative as to diminish future voluntary compliance by the general public”. This public reaction is directly facilitated by 26 U.S.C. § 6103(k)(1), which requires the IRS to disclose accepted OICs to the general public “to the extent necessary to permit inspection”. It is the prospect of this public inspection that compels the IRS to evaluate the impact of a compromise on the integrity of the tax system.

Application of Law to the Facts and the Abuse of Discretion Standard

Filipowski petitioned the U.S. Tax Court to contest the OIC rejection, claiming that the IRS’s reliance on disputed facts—such as the characterization of his assets, his affiliation with the DePasquale Trust, and his Parkinson’s diagnosis—constituted an abuse of discretion and precluded summary judgment. The Tax Court disagreed, granting summary judgment in favor of the Commissioner.

On appeal, the Eleventh Circuit reviewed the Tax Court’s grant of summary judgment de novo. Because the underlying tax liability was not at issue, the court reviewed the IRS’s administrative determination for an abuse of discretion, which occurs only if the agency acts “arbitrarily, capriciously, or without sound basis in fact or law”.

The court emphasized that “the decision to accept or reject an [OIC], as well as the terms and conditions agreed to, is left to the discretion of the [IRS]”. It noted that the undisputed facts presented “an insurmountable hurdle for Filipowski’s argument”. These key, undisputed facts were:

The underlying liability arose from Filipowski’s deliberate use of a “sham partnership” tax shelter to avoid tax on $110 million in income following a $3.5 billion corporate sale.
The total outstanding liability was $140 million, while the taxpayer offered a mere $1.5 million (approximately 1% of the debt).
The taxpayer had a history of filing delinquent tax returns (specifically for the 2015–2018 tax years) and only cured these delinquencies upon IRS prompting.

The Eleventh Circuit concluded that the IRS acted well within its discretion in rejecting the OIC because accepting such a minimal offer from a taxpayer with this specific history and profile “could ‘diminish future voluntary compliance by the general public.’”

Comparing the Precedent in Fargo v. Commissioner

To support its conclusion, the Eleventh Circuit relied heavily on the Ninth Circuit’s seminal decision in Fargo v. Commissioner. In Fargo, the court upheld the IRS’s rejection of an OIC representing approximately 7% of the outstanding liability. The Eleventh Circuit highlighted the key factors from Fargo that mirrored Filipowski’s situation:

The taxpayers had voluntarily invested in aggressive tax shelters.
The taxpayers were “not the victims of fraud or deception”.
The primary incentive created by requiring full payment is “to encourage taxpayers to research investments more carefully and keep in better contact with financial agents.”

By applying these factors, the court reinforced the principle that the IRS is not legally obligated to provide a discount to sophisticated individuals who engage in sham transactions to avoid their civic responsibilities, even if they are currently unable to pay the full balance.

Factual Disputes vs. Materiality in Public Policy Rejections

A central defense raised by Filipowski was that the Tax Court erred in granting summary judgment because disputes of material fact remained concerning his asset valuations, the DePasquale Trust, his Coinbase holdings, and his medical condition.

The Eleventh Circuit rejected this defense by making an important legal distinction regarding materiality under Federal Rule of Civil Procedure 56 (and Tax Court Rule 121). The court noted:

“Though these allegedly disputed facts may speak to whether Filipowski’s RCP was properly calculated and whether the IRS could collect on the $140 million debt, the IRS did not abuse its discretion, based on the undisputed facts, in rejecting Filipowski’s OIC on public policy grounds.”

Because the IRS’s rejection was grounded independently on public policy concerns—specifically that accepting the OIC would undermine public confidence in the fair administration of tax laws—any disputes regarding Filipowski’s actual ability to pay or his precise RCP were immaterial to the outcome. The public policy ground under Treasury Regulation § 301.7122-1(b)(3)(iii) operates as an independent, overriding constraint on the IRS’s authority to compromise liabilities.

Conclusions of the Court and Practical Takeaways

The Eleventh Circuit affirmed the Tax Court’s summary judgment in favor of the Commissioner, sustaining the IRS’s levy and the rejection of the OIC. The court established that when a taxpayer’s liability arises from a fraudulent or sham tax-avoidance scheme, and the taxpayer possesses a history of filing delinquencies, the IRS does not abuse its discretion by flatly refusing an OIC on public policy grounds—even if the taxpayer’s RCP suggests they can never pay the liability in full.

For CPAs and EAs, this case yields several vital practice management lessons:

Source of Liability Matters: The origin of a tax liability is a critical factor in the OIC evaluation. While “doubt as to collectibility” is a standard avenue for relief, the IRS will actively leverage Treasury Regulation § 301.7122-1(b)(3)(iii) to deny compromises that stem from abusive tax shelters or intentional avoidance, regardless of the taxpayer’s current financial distress.
Compliance History is Crucial: A history of delinquent filing, even if eventually cured, heavily weighs against OIC acceptance. Practitioners must advise clients that ongoing, prompt compliance with annual tax reporting is a prerequisite for favorable collection treatment.
Opulent Lifestyles Under Scrutiny: Reporting monthly expenses of $34,500 while seeking to compromise a debt for pennies on the dollar is an administrative red flag. The IRS will scrutinize trust structures and close business relationships to identify hidden asset positioning.
RCP Disputes May Be Immaterial: If the IRS has solid public policy grounds to reject an offer, arguing over asset valuations or future income calculations will not prevent summary judgment. Practitioners must evaluate the public policy risks of an OIC before engaging in costly disputes over collection potential.

Prepared with assistance from Gemini Notebook.