IRS offset program: a case study.

• Author: Francis, Leonard F.

Since the Business Master File offset program was resumed, Phillips Petroleum Company has spent considerable time and effort attempting to clear up problems caused by the automatic application of various overpayments to amounts due for different types of taxes and for different tax periods. In addition, considerable time and effort have been spent on the part of IRS personnel in the Oklahoma City District and in the Austin Service Center in getting automatic offsets reversed and straightened out. Although the IRS Service Center and Large Case Examination staff have been helpful, they are becoming as frustrated as the taxpayers in correcting the administrative problems the offset program is creating, particularly for "large case" taxpayers.

There have been a number of occasions since the program was reinstated on which offsets between different types of tax and tax periods have been made on Phillip's account. In none of those instances, was Phillips given a notice to pay the amount due before the offset was made. In addition, whenever the full amount due was completely satisfied with a tax overpayment from another type of tax or period, Phillips never received notice that the amount was even due or that it had been satisfied by an offset in a timely fashion.

Another problem related to this is that over the past year, many of the notices sent to Phillips were not received until after the 10-day period allowed for a response, with some being received more than two weeks after the date on the notice.

The problems and frustrations being experienced by Phillips with the offset program can be illustrated by the following example:

* The IRS conducted an examination of a partnership named "Company M" for 1987, of which a subsidiary included in Phillips's consolidated U.S. income tax return held a 25-percent interest. As a result of the examination, Phillips's share of the tax underpayment was determined to be $837.20.

* In June 1991, the IRS Team Coordinator assigned to Phillips's case on the current examination asked whether the taxpayer preferred (i) to pay the tax due of $837.20 associated with the Company M partnership examination for 1987, or (ii) to keep the partnership statute of limitations open and include the amount due with the results of the Phillips's examination.

* Phillips advised the IRS that the amount due would be paid when the notice was received. In early July, the IRS Team Coordinator contacted Phillips to report that the...