C. TAS Will Continue to
advocate to make the Offer in Compromise program More accessible to appropriate
Taxpayers
For the past nine years, the National Taxpayer Advocate has expressed concern with the effectiveness of the IRS’s OIC program.
Most recently, in February 2009, the National Taxpayer Advocate testified before Congress about the IRS’s need to make its collection alternatives more accessible to appropriate taxpayers, and identified OICs as one such viable alternative that has been inexplicably underutilized.
As illustrated below, IRS data suggest that activity in the OIC program has declined steadily since FY 2003. Further, the number of OICs accepted by the IRS decreased by 72 percent - from 38,643 in FY 2001 to 10,677 in FY 2008.
The IRS accepted 34 percent of the OICs submitted in FY 2001, while it accepted only 24 percent of the OICs submitted in FY 2008, despite a recent and significant economic downturn.
See Korntved Associates comments in BLUE.
Graph timeline notes:
The OIC program was centralized in
2001. All offers were supposed to be processed through one of two offices in
either Holtsville, NY or
The user fee enacted in 2003 was the
application fee of $150.
The 20% down payment requirement was
put in place in 2006 when the tax law changed. It dramatically dropped the
amount of offer submissions. Korntved & Associates had clients offer much
less so the 20% down payment was also much less. The deposit requirement only
had a minimal impact on our system.
Some of the tax law changes in 2006
were better! The IRS can only put a payment plan in place over the life of the
collection statute. They previously had the ability to force a longer plan.
Taxpayers are also allowed to preempt a collections payment plan in lieu of an
offer payment plan. This allowed us to offer $100/month when the clients were
previously paying thousands/month. The last law change required the OIC to
accept any offer if it was pending more than two years! That law forced the OIC
to work offers much quicker.
Graph calculations notes:
The percentage of accepted offers has
INCREASED while the amount of submitted offers has DECREASED. However, the
total amount accepted has DECREASED dramatically. In other words, politicians
have tried to kill the offer program!
The IRS acceptance numbers should
also consider non-processible offers – which are NEVER included in the
submission or rejection data. All those offers are submitted and rejected so
the acceptance rate is MUCH lower than indicated on the graph. The difference is estimated to be as much
as 15-20%. TAS has verified that from prior data.
The Taxpayer Advocate Office is
currently trying to make the offer program better. See below.
In response to the National Taxpayer Advocate’s concerns and testimony, the IRS announced the formation of an OIC Project Team, which includes TAS representation. As part of this project, the IRS has contracted with MITRE Corporation and Porter Novelli Public Strategies to take a closer look at the characteristics of acceptable offer applicants and to increase the number of qualified OIC candidates within the existing process. This is good new for taxpayers.
The National Taxpayer Advocate applauds
this initiative and believes that, to be successful, the Team must address the
following items:
1. Current OIC Application Process
Determine whether the current forms and application requirements are burdensome for taxpayers, and if so, make appropriate changes to address taxpayer needs, e.g., consider a simplified application (this is long overdue) and user-friendly waiver of the OIC application fee for low income taxpayers. The forms should be the beginning of the conversation with taxpayers. Forty-six pages of forms and instructions is daunting, and requiring taxpayers to attach all sorts of documentation up front - much of which is already available to the IRS – has a chilling effect on taxpayers who are considering OICs. It sends a message that the IRS doesn’t want to hear from taxpayers unless they can jump through all these hoops.
2. Amount of Financial
Information Required and Timeframes
Streamline the OIC investigation
process, i.e., the basic information needed for the IRS to make sound and
reasonable decisions regarding the merits of a taxpayer’s offer. We believe ALL offers should be accepted with a premium put
on future compliance so ALL offers should be appropriately streamlined. Establish reasonable periods of time for
taxpayers to submit information deemed necessary for an OIC acceptance
determination. Improve the case-building process to obtain the appropriate
amount of information to support an acceptance of the OIC, rather than an
investigation seemingly designed to recommend rejections and returns. This has to come down from Congress and/or the Secretary of
the Treasury. This is also long overdue.
3.
Communications with Taxpayers
Provide real and meaningful opportunities for taxpayers to interact with the IRS throughout the OIC investigation, including front-end direction and guidance to taxpayers considering the OIC as a potential solution for their tax problems, and require contacts by offer examiners to stimulate two-way personal communication between the IRS and taxpayers as the OIC application is developed and analyzed. The decision to accept or reject a taxpayer’s OIC is too complex and important for the IRS to handle through an oversimplified and impersonal evaluation of paperwork. Personal interactions with taxpayers are critical to arriving at sound and reasonable decisions regarding an OIC’s merits. Taxpayers should have ample opportunity to provide information to the IRS that could support an acceptance decision. At the conclusion of the process, taxpayers should clearly understand the basis behind the IRS decisions to accept or reject their OICs, and this basis should be personally conveyed to the taxpayer before memorializing it in a determination letter. We feel the IRS is very good here.
4. Clarify and Reinforce the
Role of the OIC as a Collection Tool
Herein lies the
BIGGEST problem of all. The OIC should be emphasized as a compromise tool first
and a collections tool second. We feel taxpayers ultimately pay many more taxes
after compromise because they work unencumbered for much more income. The
static OIC model of trying to get a lot today while ignoring tomorrow’s
unencumbered worker is simply foolish. We have been trying to get the IRS to
understand this for years.
Determine the appropriate use of the OIC as a tool within the IRS collection process.
Any review of IRS collection statistics reveals that significant portions of the IRS collection inventories remain un-worked and unresolved.
The inventories of cases reported as
“currently not collectible,” as well as those residing as inactive in the
Collection “queue,” continue to grow. Yet, the number of taxpayer cases
resolved through OICs continues to decline. The IRS is saying that
a person should be allowed to settle if they are already in CNC status per
collections. We agree.
5. Assess
Current OIC Staffing
The IRS has relegated OIC decision making to a very limited number of Collection employees, OIC Specialists and Examiners. This “bottleneck” in the collection process appears to be a contributing factor to the underutilization of OICs in collection cases, and also seems to influence the manner in which OICs are evaluated. For example, OIC Process Examiners tend to perform more as “gatekeepers,” restricting access to the program, rather than as assistors, who help taxpayers navigate their way through the OIC process.
We have also noted that very few IRS Collection Field employees have the authority to investigate and accept OICs. Moreover, field-based OIC work is currently performed by revenue officers located in the states of Alabama, Arkansas, California, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, and Texas, leaving a significant void for a local presence in many heavily taxpayer populated areas.
While Revenue Officers can routinely and
independently issue levies, serve liens, and recommend costly suits and seizure
actions, they do not have similar authority with respect to OICs. We believe
the consequences of this situation are significant. OIC
cases used to be worked in the same geographical area as the taxpayer. We would
like to see this process return – if the field officers were actually given
authority to negotiate and approve offers.
Although the OIC Project Team is not planning to explore the OIC investigation process (e.g., reasonable collection potential (RCP) and other procedural requirements that may limit the ability of Collection employees to recommend the acceptance of offers), the National Taxpayer Advocate strongly urges the Team to review these critical components of OIC processing as phase two of the project. As currently structured, the IRS’s RCP formula is heavily weighted based on assumptions about a taxpayer’s future income earning potential and equity in assets that may be unrealistic. We believe an important prerequisite to attract more “successful” OIC applications is to establish a proven track record of accepting offers in appropriate situations.
We applaud the IRS for recently taking several positive steps toward considering the economic realities of the day, such as relaxing the processability determination for low income taxpayers and conducting a “second level” review of OICs where a pending rejection is due solely to a high RCP based on real property valuations. This has been very helpful to taxpayers and has vastly improved the offer program. However, it has recently come to TAS’s attention that the IRS Collection leadership has concluded OIC employees may be too lenient in their application of the concept of economic hardship and are incorrectly accepting the taxpayer’s word at face value. The National Taxpayer Advocate is troubled by this observation since it may result in harm for many taxpayers who submitted an OIC in reliance on this new guidance. The National Taxpayer Advocate remains committed to increasing the viability of the OIC program. She looks forward to working with the IRS and the OIC Project Team to make this important collection alternative accessible to taxpayers.