Offers in compromise.

• Author: Johnson, Robert T.

An Offer in Compromise (OIC) is a settlement of a delinquent tax account for less than the full amount due. Acceptance of an OIC on a delinquent account extinguishes the taxpayer's debt, provided all the terms of the offer are met. The authority to compromise a Federal tax liability is found in Sec. 7122, which states that the Secretary may compromise any civil or criminal case arising under the Internal Revenue laws prior to reference to the Department of justice for prosecution or defense.

While OICs have been an available collection tool for the IRS for many years, the policy for their acceptance changed in 1992, as a result of concerns over an ever-increasing delinquent accounts receivable inventory, and the growing number of cases reported as "currently not collectible." The revised policy statement provides that "[t]he Service will accept an Offer in Compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An Offer in Compromise is a legitimate alternative to declaring a case as currently not collectible or to protracted installment agreements. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government."

This change in policy has had a dramatic impact on the number of offers received by the Service, as well as on the acceptance rate. In 1992 (the year of the policy change), the IRS received 12,102 offers and accepted 36% of them; in 1996, it received 133,598 offers and accepted 48% of those determined to be processable.

This enormous increase in receipts has resulted in the need. to refine processing procedures to enhance consistency and timeliness in completing OIC investigations. The Service has developed processability criteria used to screen incoming offers. If an offer is determined to be nonprocessable based on these criteria, it is returned to the taxpayer without an investigation of its merits. The most common reasons for an offer being returned to the taxpayer as nonprocessable are:

[ ] A specific amount is not offered. [ ] Appropriate signatures are not present. [ ] A financial statement is not provided. [ ] The offer does not reasonably reflect net equity in assets.

Once an OIC has been determined to be processable, it is generally assigned to a field revenue officer for investigation. This investigation entails consideration of the taxpayer's necessary living...