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Lewis Introduces US Tax Compromise Improvement Act,
by Leroy Baker, Tax-News.com, New York
Tuesday, May 19, 2009
Legislation has been introduced in the United States House of Representatives
that would help struggling taxpayers enter into offer-in-compromise (OIC) agreements
with the Internal Revenue Service (IRS).
The legislation, known as the Tax Compromise Improvement Act of 2009, was introduced
by Ways and Means Oversight Subcommittee Chairman John Lewis, a Georgia Democrat,
and Ranking Member Charles W. Boustany, Jr., a Louisiana Republican, on May
12.
OIC agreements are an important collection alternative for the IRS and taxpayers.
Many taxpayers seeking to enter into OIC agreements have recently lost jobs
or are experiencing financial difficulties.
Taxpayers can apply for an OIC agreement with the IRS to settle their unpaid
taxes. Under current law, because of legislation passed in 2006, a taxpayer
offering to settle a tax liability must make a partial payment with submission
of an OIC application (e.g., a nonrefundable, 20% down payment). If the OIC
application is turned down, the taxpayer’s down payment is not refunded.
Under the Lewis/Boustany bill, taxpayers would not be required to submit a partial
payment with their applications.
According to the two lawmakers, the legislation is consistent with the administration’s
fiscal year 2010 revenue proposal to eliminate the partial pay requirement.
The need to increase the usage of OIC agreements in situations of economic
hardship was raised at a February hearing of the Ways and Means Subcommittee
on Oversight examining IRS assistance to taxpayers during the economic downturn.
In announcing the hearing, Lewis said: “Americans are suffering during
these difficult economic times. They are trying to do the right thing and pay
their taxes, but they may be unable. We need to understand their problems. They
need to reach out to the IRS for assistance. Together, we must find ways to
collect the proper amount of taxes owed in a manner that is fair and recognizes
the problems that taxpayers are facing during this recession.”
At the hearing, National Taxpayer Advocate Nina E. Olson testified that the
number of OICs received by the IRS fell by 21% from fiscal year 2006 to fiscal
year 2007 as the down payment requirement took effect.
Olson testified that the 21% decline is partly attributable to the difficulty
taxpayers face in obtaining funds to make the 20% down payment prior to the
acceptance of an offer. She also noted that less than one in four offers is
actually accepted. As a result, federal taxes that could be collected are left
unpaid.
Olson’s last annual report to Congress, released in January 2009, urged
more compassion from the IRS in dealing with financially distressed taxpayers.
“It is imperative for the IRS to consider the circumstances of taxpayers
facing economic hardship before initiating enforcement actions,” Olson
wrote.
When the IRS contemplates taking an enforced collection action such as a levy,
a lien or an asset seizure, both the tax code and IRS procedures require that
IRS personnel consider whether the collection action will impose an economic
hardship on the taxpayer.
Despite these requirements, “current IRS guidance provides little direction
to help IRS employees identify taxpayers who are experiencing economic hardship
and prevent undue economic burden,” Olson wrote.
Olson’s report made three principal recommendations to reduce burden
on financially struggling taxpayers, including: making greater use of collection
alternatives when economic hardship is present; simplifying the “cancellation
of debt” minefield that many taxpayers who default on debts must navigate;
and implementing a “screen” to protect low income Social Security
recipients from continuous, automated tax levies.
Olson estimated in her report that tens of thousands and possibly hundreds
of thousands of taxpayers who qualify to exclude canceled debts from gross income
do not file the appropriate form to claim allowable exclusions. Instead, some
of these taxpayers unnecessarily include the amount of the canceled debt in
gross income, and other taxpayers who fail to include it unnecessarily face
IRS examinations and tax assessments.
The Taxpayer Advocate’s report recommended that Congress change the
law to remove taxpayers with modest amounts of debt cancellation from the cancellation
of debt income regime, and recommended that the IRS develop an insolvency worksheet
that taxpayers can file with their returns and create a centralized unit dedicated
to handling cancellation of debt issues.
.
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