TIGTA Reports on IRS Offer In Compromise Program

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In the last few weeks TIGTA released reports addressing transfer pricing, nonfilers, backup withholdingIRS’s Information Technology, and offers in compromise. In this brief grab bag post I will highlight the main findings of TIGTA’s offer report.

There has been a steady drumbeat of attention for the IRS administration of offers over the years. As Keith has written previously in his post Making Offers in Compromise Really Public, the offer program grew in the 90’s as IRS tried to get receivables off the books. The National Taxpayer Advocate has highlighted IRS’s inability to realize the potential that offers can play in encouraging future compliance and remedying inequities (see for example Most Serious Problem 20 and 21 from the 2014 Annual Report)

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The TIGTA report discusses the grounds for accepting offers and the process IRS is supposed to comply with upon receipt of Form 656. The IRS’s IRM provides that employees are supposed to process offers within 16 days of receipt and contact taxpayers within 4 months; if the 4 month deadline is not going to be met, IRS is supposed to let the taxpayer know in writing with an interim letter.

On balance, TIGTA found that IRS has made significant improvements in the way it administers offers, including the following:

1) IRS updated the application forms,

2) IRS created an online prequalifier tool,

3) IRS established a group of offer specialists to work payroll service provider cases, and

4) IRS encouraged more taxpayers to consider whether offers would benefit them.

With respect to specific changes, the report highlights how IRS tweaked the application process to increase the chances that a submission would include a user fee and include appropriate schedules. IRS has created an online offer prequalifier tool which TIGTA believes has led to a significant uptick in the percentage of submitted offers that are accepted and reduced significantly the receipt of incomplete offers. IRS development of the online offer tool (also accessible through the helpful IRS Offer in Compromise web page which is here) seems like a terrific way for taxpayers to exercise some self-help in an area where I know that there have been some less than savory characters preying on vulnerable taxpayers looking for representation in the offer process.

IRS has also created a special unit to help victims of payroll provider fraud, an issue that generated legislative attention in 2014. TIGTA found IRS decisions on all cases involving payroll fraud were supported by the documentation in the case files. As Keith discussed in the recent post on the McDonald’s franchisee defrauded by a payroll provider the IRM has some language now permitting the IRS to grant defrauded taxpayers the possibility of offer relief in this situation. The TIGTA report suggests that the IRS is using this authority which is good news for those caught in this terrible situation.

On the other hand, TIGTA found considerable room for improvement, noting that offer employees did not always complete the initial processing timely nor contact taxpayers if by the promised dates. Additionally, TIGTA found that 11 percent of the rejected offer cases failed to include documentation that IRS employees discussed other collection alternatives with taxpayers.

In response to the findings, IRS agreed to remind employees of deadlines and update its guidance to ensure that its employees discussed and documented other collection alternatives when IRS rejects an offer.

It has now been a quarter century since this IRS embarked on the program of using the offer in compromise process as a viable collection alternative. Compared to most state offer programs (or lack of offer programs) the IRS program does a good job of giving taxpayers a chance for a fresh start on their federal taxes without having to resort to bankruptcy. The benefit of the program particularly exists for taxpayers with low income and few assets. Still, the financial situation facing the IRS makes implementation less than ideal in many cases and the TIGTA report points out some of the areas in need of improvement.

 

 

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

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