IRS RESPONSE TO RECOMMENDATION: Positioning an offer specialist in each state would not add value.  Research can be completed online when unique situations are identified. In addition, the Internal Revenue Manual (IRM) provides for a Form 2209, Courtesy Investigation, to be issued requesting assistance from another area if local expertise is required.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Having a specialist readily available in each state may allow for on-demand assistance tailored to the OIC process when needed and not just when an employee thinks it is needed.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: ​The policy to require taxpayers to have filed all delinquent tax returns prior to submitting an OIC helps to prevent frivolous offer filings, puts the taxpayer in good standing for the required offer investigation, and allows us to focus our resources on cases that are ready to be worked. We have clearly communicated this policy in the Form 656, Offer in Compromise, the Form 656-Booklet instructions, and the OIC home page on IRS.gov. Additionally, the Form 656 requires taxpayers to certify they have filed all returns or are not required to  file.

Contrary to the statement in the report, we have evaluated the relative costs of working resubmissions versus holding offers open while waiting for the taxpayer to meet their filing requirement. Although there are costs associated with the resubmission of returned offers once the taxpayer is current on their filing requirement, it costs far less to immediately return the offer than to hold it open. In FY 2017, the percentage of offers resubmitted after being returned was 34% (947) for IMF taxpayers and 47% (266) for BMF taxpayers.

CORRECTIVE ACTION: N/A

TAS RESPONSE: While it is laudable that the IRS has communicated these changes to the public, the very nature of the changes makes it more difficult for taxpayers to submit a successful OIC. The IRS is also squandering an opportunity to improve filing compliance. Once a taxpayer leaves the OIC program, he or she may determine that it is too much of a burden to return to it, and the IRS could have used that interaction to get the taxpayer current on filing obligations. It is true that 47 percent of the Business Master File (BMF) taxpayers who had an OIC returned for failure to file all returns resubmitted OICs. However, that means that over half did not reenter the OIC program. This number represents many lost opportunities to encourage successful OICs and future filing compliance.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: The deemed acceptance rules do not apply if the IRS rejects the offer, the IRS returns the offer as non-processable or no longer processable, or the offer is withdrawn within the 24-month period, even if it is later determined that the initial decision was in error.

CORRECTIVE ACTION: N/A

TAS RESPONSE: In an email dated April 27, 2018, IRS Counsel stated that OICs returned in error are not subject to the 24-month deemed acceptance period in Internal Revenue Code (IRC) § 7122(f). It is true that the legal guidance Counsel relied on does not differentiate between OICs being returned in error or not. However, the IRS could allow an exception for OICs returned due to IRS error. Such an exception would further congressional intent to make the OIC program less burdensome for taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: ​Failing to exercise the IRS’s right to offset refunds while an OIC is pending would treat these taxpayers differently from other taxpayers who did not file an OIC. Disparate treatment could encourage abuse of the program.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As the MSP showed, taxpayers within the OIC program will have different experiences depending on when in the calendar year they submit their OIC, particularly if their OIC goes to Appeals. The taxpayers who agree to have their refund offset as part of the OIC program should not be compared to taxpayers who are not in the OIC program. Instead, all taxpayers within the OIC program should  be treated similarly, regardless of when their OIC is received. This problem disproportionately affects low income taxpayers who rely on their refunds.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: Reasonable collection potential is a complex and nuanced topic. It is the policy of the Service to accept an OIC when it is unlikely the tax liability can be collected in full and the amount offered reasonably reflects collection potential. We are reviewing the future collection results in cases where an OIC was rejected, and we will consider changes to the program based on the findings.

Update: We reviewed future collection results in cases where an OIC was rejected. Specialty Collection Offer in Compromise partnered with HQ Offer in Compromise Policy, RAAS (Research, Applied Analytics and Statistics) and SBSE Research to compile and stratify historical data. We completed downstream analysis on offers that were not accepted for compromise. We have attached the relevant PowerPoint decks created by RAAS, redacted to provide pages relative to this particular interest.

After reviewing future collection results in cases where an OIC was rejected, we have determined a change is not warranted. Findings indicate 25% to 26% of individual and business Offer taxpayers full pay the liability after rejection of the OIC. Further, 66% to 71% greater revenue amount was collected above the offer amount on rejected cash and deferred payment offers respectively, from October 2014 to March 2019. On this offer group, $694M was collected from accepted offers versus $822M for those that were not accepted.

CORRECTIVE ACTION: Reasonable collection potential is a complex and nuanced topic. It is the policy of the Service to accept an OIC when it is unlikely the tax liability can be collected in full and the amount offered reasonably reflects collection potential. We are reviewing the future collection results in cases where an OIC was rejected, and we will consider changes to the program based on the findings.

TAS RESPONSE: TAS is pleased to hear that the IRS is reviewing future collection results in cases where an OIC is rejected. However, we are not familiar with the parameters or nature of the review. We look forward to the IRS sharing its results when available.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A