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Apr 16

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IRS overwhelmed by proposed “Offers in Compromise”

The Treasury Inspector General for Tax Administration (TIGTA) recently issued a report addressing the IRS’s handling of tax offers in compromise (OIC). An OIC is a proposed agreement between a taxpayer and the federal government that settles a tax liability for payment of less than the full amount owed. The TIGTA summarized its findings as follows:

TIGTA found that the IRS did not always contact taxpayers when promised, and inventory backlogs caused processing delays. …

TIGTA reviewed a statistically valid sample of offers and found the IRS did not process all offers timely. In 73 (74 percent) of 99 offers, the IRS failed to contact the taxpayer by the promised date. TIGTA estimates that 9,509 taxpayers who submitted offers between July 1 and December 31, 2010, may not have been contacted when promised.

Additionally, as of October 25, 2011, there were 7,472 unassigned offers in holding queues awaiting assignment to OIC staff. TIGTA found that one processing site had more than four times as many unassigned offers from self-employed taxpayers compared with the other site, and 37 percent of the offers were more than six months old.”

Delays are obviously frustrating to the taxpayers involved. However, delays also provide uncertainty to the taxpayers involved, who are unable to proceed with other transactions until they know whether their tax liabilities will be resolved.

TIGTA’s data covered data through December 31, 2010. The TIGTA concluded that one reason for the large backlog was the poor economy, which made it more difficult for taxpayers to pay what the IRS thought was owing.

The TIGTA made suggestions for improving the large backlog. The IRS agreed with all recommendations.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/04/irs-overwhelmed-by-proposed-offers-in-compromise/

1 comment

  1. Daniel Nolte

    Frankly what I hear ‘from the trenches’ is that the IRS is overwhelmed in almost every respect because of shortsighted cutbacks in personnel by congress combined with increases in almost every area of their work such as an increase in attempted fraudulent filings.

    Regarding OICs in particular they are being fed by the advertisements of firms offering easy help from tax burdens. In many cases though the over-their-heads taxpayer might be better served by setting up an installment payment plan. The basic presumption of the IRS in reviewing an OIC is that every spare dollar above the most basic of living expenses is theirs. Thus the terms they might get from an OIC and the terms they could propose in a payment plan might be the same, while the paperwork requirements and costs are much lower.

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