Offer in Compromise Background
Section 7122 of the Internal Revenue Code authorizes the Secretary of the Treasury to compromise tax delinquencies. The purpose of the Offer In Compromise Program is to (1) collect what can be fairly and reasonably collected from taxpayers who cannot fully pay their delinquent tax liability, (2) collect the tax in a timely and cost-effective manner, and (3) provide taxpayers with a fresh start toward complying with all future tax filing and payment requirements. Generally, IRS views the Offer In Compromise Program as a last resort after taxpayers have explored all other available voluntary payment options, such as installment agreements. IRS resolves less than 1 percent of all balance due accounts through the Offer In Compromise Program.
In recent years, the Offer In Compromise Program underwent numerous program changes intended to reduce the number of inappropriate offers submitted by taxpayers and improve its operations. The changes include the following. In 2001, IRS established the Centralized Offer In Compromise (COIC) processing centers in Brookhaven, New York, and Memphis, Tennessee, to reduce inventory and processing times and reduce costs. Process examiners, lower-grade staff at the COICs, perform the initial processing of new offer applications, which includes determining whether taxpayers’ applications meet IRS’s processability criteria. Offer examiners, higher-grade staff at these COICs, process less complex offers to completion by reviewing taxpayers’ financial information and making decisions about whether to accept the offers. COICs primarily examine offers involving wage and investment income. Based on a pilot test, IRS plans to have COIC staff work some offers from taxpayers with self-employment income starting in the summer of 2006. More complex offers are sent to IRS field offices around the country where offer specialists, who are higher graded than offer examiners, work the offers to completion. These offers take longer to investigate and may require face-to-face meetings with the taxpayers. In 2003, IRS implemented an offer application fee requirement. Taxpayers submitting offer applications must include a $150 fee unless they qualify for a fee waiver. In 2004, IRS revised the Offer In Compromise application form to make it more user-friendly to taxpayers. In that same year, IRS management put more emphasis on communicating with taxpayers while processing offers. In addition to these program changes, the Restructuring Act also mandated a new basis for accepting offers ETA.