The Internal Revenue Service (IRS) is improving the offer in compromise process internally and externally, but more can be done, says a report from the Treasury Inspector General for Tax Administration (TIGTA). An Offer in Compromise (OIC) is an agreement for payment between the IRS and the taxpayer. It settles a debt by paying less than the original amount owed.
Individuals can request an OIC on Form 656, along with a fee of $186. Immediately after the fee is paid, 20% of the amount agreed upon is due (for the Lump Sum Cash Agreement Option), or the initial periodic payment given by the IRS (Periodic Payment Option) must be paid to start the agreement. If the IRS does not make a decision on an OIC in 24 months, it will be considered accepted.
TIGTA has reported that the IRS has improved the process of OIC since 2012. The IRS has updated the application forms, has online tools and specialists assigned to certain cases, and informs individuals to help them decide whether the OIC will truly benefit them.
However, the process of an OIC is still a big issue with taxpayers. IRS employees have not always completed the paperwork timely, contacted individuals when they should have, or sent notifications when deadlines were not met. It was found by TIGTA that 11% of rejected offers did not have proper documentation that any alternatives were discussed with taxpayers.
Recommendations
The recommendations to mitigate these issues (by TIGTA) were to remind IRS workers to complete the process within the required 16 days and contact individuals within 120 days. It was also noted that IRS employees should know they are required to send letters within 120 days. If 120 days passed and the taxpayer was not notified, files should be reviewed to ensure that other options were discussed in case the OIC did not go through. Also, it was suggested that the management at the IRS should have refresher training for employees and that other resolutions are discussed with managers.
The officials at the IRS were in agreement with the recommendations and stated that a memo would be issued to employees. There is an online tool (Fresh Start Initiative) which has helped streamline the process. Since the implementation of Fresh Start in 2012, the OIC acceptance rate has risen 10 percentage points, from 34% in the fiscal year 2011 to 44% in the fiscal year 2015. The IRS has plenty of room to improve in the OIC process- they are headed in the right direction.
Some information from this blog was taken from an article written by Michael Cohn, which previously appeared in Accounting Today on November 1, 2016.
