Senate Alarmed Over IRS Management Of 'Offers In Compromise' Program

by Mike Godfrey, Tax-News.com, Washington

08 September 2004

Two senior Senate lawmakers on the tax-writing Finance Committee have expressed concerns over the Internal Revenue Service’s administration of the ‘offers in compromise’ (OIC) program, designed to settle protracted tax disputes between the taxpayer and the IRS.

In a letter to Treasury Secretary John Snow, Finance Committee Chairman Chuck Grassley and ranking Democrat Max Baucus wrote of their continuing disquiet at “the Treasury’s and the IRS’s continued failure to efficiently and effectively administer the offer in compromise program.”

“We have heard from many practitioners and interested parties that the IRS is more interested in managing OIC inventory rather than getting to a resolution of tax debt and giving the taxpayer a fresh start,” the lawmakers noted.

An 'offer in compromise' is an agreement between the IRS and the taxpayer that seeks to resolve the latter's tax liability, and in certain circumstances, the Revenue has the discretion to settle a tax dispute by accepting less than the full amount owed.

One of the concerns raised by the Senators involves the Revenue’s decision to discontinue the practice of considering an offer in compromise whilst a bankruptcy proceeding is pending. Another relates to the high rate of appeal by taxpayers who have had OIC’s rejected by the IRS - around 86% according to the Chief of Appeals.

The lawmakers are also demanding to know what guidance the IRS has given to its employees regarding complex issues such as long-standing cases that have accrued penalties and interest, and the Alternative Minimum Tax in relation to the exercise of incentive stock options.

“We are also troubled by the apparent failure of the Treasury and the IRS to fully utilize the flexibilities provided in the effective tax administration provision of RRA 98 (IRS Restructuring and Reform Act of 1998),” the Senators stated.

Responses to these concerns have also been sought, by the end of September, from the IRS Commissioner Mark W. Everson; National Taxpayer Advocate Nina Olson; the Deputy Inspector General for Audit, Treasury Inspector General for Tax Administration Pamela Gardiner; and Comptroller General of the United States Government Accountability Office David M. Walker.

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