IRS changes offer in compromise program.

• Author: Wenzel, Bob
• Position: Tax debt compromise program

Recently, the IRS made significant changes in its procedures for offers in compromise of a tax debt. A revised policy statement, new Internal Revenue Manual procedures and simplified forms all signal a move toward more frequent use of the offer in compromise as a viable alternative in resolving the collection of tax liabilities. The Service sees these changes as evidence of how "Compliance 2000" can be used to achieve a more easily administered system that takes into account the unique problems that may lead a taxpayer to noncompliance.

It is an accepted business practice to resolve collection and liability issues through compromise. Compromises have been provided for in the Code at least as far back as 1906. But for too long, cumbersome and lengthy procedures have frustrated taxpayers and hampered the IRS's use of this collection tool. Each year the Service receives an average of 8,000 offers in compromise requests from taxpayers and accepts about 2,000. Over the past three years, total tax debts on these offers averaged $171 million a year. Some rejected offers would have provided the Government with more money than what was eventually collected. Traditional IRS approaches, such as reporting accounts as currently not collectible or entering into extended installment agreements, have not always proven to be the most effective way of bringing taxpayers into compliance with the tax laws. In reporting cases as currently not collectible, the Service has taken the view that because of the 10-year statute, the Federal tax lien and offset authority, there is always a possibility that some payment may be received. Far too often, however, this simply does not happen. Sometimes, the Service enters into installment agreements that require payments over extraordinarily long periods of time. In many cases, the taxpayer is not paying enough to cover the accruals and will never satisfy the liability.

These concerns and others (such as delays in the decision process) triggered the revisions to the offer in compromise program and the revised policy statement regarding offers. The new policy statement clearly states that the Service will accept an offer if the amount offered reasonably reflects collection potential. The new policy confirms positively that offers in compromise are a useful collection tool and a practical alternative to a prolonged installment agreement. Offers conform to the IRS goal of achieving collection at the earliest possible time and...