If you've ever filled out an IRS Form 433-A and watched an Appeals officer cross out line after line of your household budget, you already know the frustration: the government doesn't just want to know what you can't afford — it wants to decide what you shouldn't be spending. A June 2026 Tax Court memorandum decision, Tooke v. Commissioner, puts real numbers and real reasoning behind exactly how much discretion an IRS Appeals officer has to override a taxpayer's own math when reviewing an offer in compromise or a partial-pay installment agreement. For any small business owner who's fallen behind on taxes, the case is a useful — if sobering — field guide to what actually flies with the IRS and what doesn't.
The Backstory: Six Years of Unpaid Taxes and a Pile of Hardship Claims
Charlton C. Tooke III owed the IRS unpaid federal income taxes stretching from 2012 through 2017. After the IRS filed a Notice of Federal Tax Lien and signaled its intent to levy, Tooke requested a Collection Due Process (CDP) hearing — the formal appeal process that lets a taxpayer challenge collection action before the IRS moves to seize assets or garnish income.
At the hearing, Tooke proposed an offer in compromise, initially in the $175,000–$375,000 range, later revised upward. He argued two grounds: doubt as to collectibility (he genuinely couldn't pay the full balance) and Effective Tax Administration, or ETA, hardship (paying in full would create an unfair economic burden even if he technically could scrape it together). His hardship story was substantial: he alleged a former spouse had stolen from him, he'd been diagnosed with Parkinson's disease and wanted to reserve roughly $85,000 for future medical costs, and he was covering private-school tuition, tutoring, and transportation for a special-needs adopted child.
The IRS Settlement Officer rejected the offer and also declined a straightforward installment agreement, largely on the grounds that Tooke's proposed monthly payment fell well short of what the IRS calculated as his Reasonable Collection Potential (RCP) — the IRS's formula for how much a taxpayer can pay over time based on income, assets, and allowable expenses. Tooke took the case to Tax Court, arguing the Settlement Officer abused her discretion.
The Legal Standard: Abuse of Discretion, Not "Was It Fair?"
Tax Court review of a CDP determination doesn't ask whether the IRS's decision was the best one — it asks whether the decision was made "arbitrarily, capriciously, or without sound basis in fact or law." That's a high bar for a taxpayer to clear, and it's the lens through which every one of Tooke's arguments got evaluated.
What the Court Actually Decided
RCP Is the Floor, and Falling Short Isn't Enough
The Tax Court reaffirmed a principle that shows up again and again in OIC litigation: the IRS does not abuse its discretion by rejecting an offer that comes in below the taxpayer's calculated RCP, even if the taxpayer disagrees with how that number was calculated. If your offer is lower than what the IRS's formula says you can pay, you need either airtight documentation that the formula overstated your capacity, or a genuine ETA hardship argument — general dissatisfaction with the math won't move the needle.
Speculative Future Expenses Don't Count
Tooke's request to set aside $85,000 for anticipated future Parkinson's-related medical costs was denied, and the Court's reasoning is worth remembering: offer figures are based on documented, current expenses, not projections of what might happen. If you want a medical reserve included in your RCP calculation, you generally need current, substantiated costs — not a forecast, however reasonable it sounds.
Duplicate and Excess Expenses Get Cut
The Court upheld disallowing roughly $1,000 a month in tutoring costs because the child was already enrolled in private school — a benefit the IRS had already factored into the budget. Layering a second, overlapping expense on top of an already-approved one reads as duplicative, not additional need. Similarly, $550 in monthly transportation costs was denied because Tooke had already been allowed more than the IRS's standard vehicle operating cost allowance, and he hadn't documented why he needed even more on top of that.
The throughline: national and local expense standards exist for a reason, and once you've been granted an above-standard allowance in one category, asking for another exception in a related category invites exactly the scrutiny it got here.
Past Misfortune Doesn't Excuse Current Delinquency
Tooke's claim that a former spouse had stolen from him didn't move the needle either, because it didn't causally connect to why the taxes went unpaid in the years at issue, and it didn't show the kind of prudent financial management the IRS looks for when weighing hardship claims. A sympathetic backstory has to tie directly to the collection problem — it can't just be context.
Why This Matters Beyond One Taxpayer's Parkinson's Diagnosis
CDP hearings are one of the few structured off-ramps a taxpayer gets once the IRS starts moving toward a lien or levy, and Tooke is a useful data point on how narrow that off-ramp actually is. A few numbers put it in perspective: across 2015–2024, taxpayers submitted roughly 499,000 offers in compromise, and the IRS approved about 183,000 of them — a historical acceptance rate a little over one in three. The offers that get accepted tend to be well below what a taxpayer would have owed outright (the IRS reports an average accepted offer settling roughly $16,000 in debt for around $6,600 paid), but they also tend to be built on realistic, well-documented numbers rather than aspirational ones. Tooke shows exactly which kinds of numbers get thrown out.
For a small business owner facing a tax bill they can't pay in full, three things follow directly from this ruling:
- Do the RCP math before you file, not after. If your proposed offer or partial-pay installment agreement is materially below what the IRS's own formula would calculate from your income, assets, and allowable expenses, expect a rejection unless you have documented special circumstances.
- Build your hardship case on current, documented costs. "I might need this later" is a much weaker argument than "here is the invoice, the diagnosis, and the recurring bill I'm paying right now."
- Watch for double-counting. If you've already received an above-standard allowance in one expense category (housing, transportation, education), a second request touching the same underlying need will draw exactly the kind of "duplicative" objection Tooke ran into.
None of this means partial-pay installment agreements or offers in compromise are dead ends — they remain one of the most effective tools for a business owner who's genuinely behind. It means the IRS (and the Tax Court backing it up) expects the numbers behind the request to be precise, current, and non-redundant.
Keep Your Numbers Ready Before the IRS Asks
Cases like Tooke usually turn on a taxpayer's inability to produce clean, current, well-organized financial records fast enough to satisfy an Appeals officer's scrutiny. That's a much easier problem to avoid than to fix after a Notice of Federal Tax Lien has already landed. Beancount.io offers plain-text accounting that keeps every transaction in a version-controlled, auditable ledger — so if you ever need to hand an accurate income-and-expense picture to the IRS, your accountant, or yourself, it's already there. Get started for free and keep your books ready for whatever comes next.