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The IRS is taking longer to respond to offers in compromise (OICs) due to a substantial increase in the number of offers submitted by taxpayers, according to a report released by the Treasury Inspector General for Tax Administration (TIGTA).

IRS Slow On Offers In Compromise

  • 4/18/2012

IRS Slow on Offers in Compromise

The IRS is taking longer to respond to offers in compromise (OICs) due to a substantial increase in the number of offers submitted by taxpayers, according to a report released by the Treasury Inspector General for Tax Administration (TIGTA).

Between fiscal years 2007 and 2011, the number of offers increased by 28 percent due to the weakened economy and the IRS’s efforts to promote OICs. The IRS also decreased its resources, which created an inventory backlog and made the delays worse.

TIGTA audited the OIC process to assess the effectiveness of the OIC program in processing requests, consistently applying OIC guidelines, accurately measuring results of the program, and effectively promoting the program. Based on this review, 74 percent of offers did not receive a timely response from the IRS.

Although the IRS has taken positive steps to improve and promote the OIC program, further improvements are needed, the report said. Lack of IRS staff, processing errors, and lack of formal performance measures for the streamlined OIC process all contributed to the delays. TIGTA recommended that the IRS revise its processing procedures for OICs, train employees, and add a formal performance measure for the streamlined process, or apply that process to all offers.

OICs are important for financially strapped taxpayers seeking to settle a tax liability for less than the full amount owed to the government. In her 2009 annual report to Congress, National Taxpayer Advocate Nina E. Olson criticized the OIC program for the significant decrease in the number of offers accepted that year.

Olson wrote that, "Three out of every four offers disposed of in FY 2009 were returned, rejected, withdrawn, or terminated." She also said, "A taxpayer must complete over 100 steps to apply for an OIC."

Since 2009, the IRS has been actively attempting to improve the OIC program. Its measures include promoting the streamlined OIC program, which is designed to expedite the process of closing offers. TIGTA reported that "faster determinations enabled the IRS to process streamlined offers an average of 28 days faster than nonstreamlined offers in 2011." The IRS has also updated its Form 656, Offer in Compromise, and its instruction booklet, to make them more user friendly.

These efforts, as well as the growing number of taxpayers who require tax relief via the OIC program due to the state of the economy, have resulted in a significant increase in the number of new offers received. TIGTA found that the number of new offers had increased by 28 percent since fiscal year 2007. A lack of sufficient IRS resources, however, has resulted in a backlog of unresolved offers that has grown from 23,003 in 2007 to 36,069 in 2011.

The recent $305 million cut to the IRS's 2012 budget has added more obstacles to improving the IRS OIC program.

TIGTA findings and recommendations

TIGTA issued several findings in its report. These include:

  • Offers were not always processed in a timely manner.
  • Based on a statistical sampling, in approximately 74 percent of the total offers (both streamlined and nonstreamlined), the OIC staff did not contact the taxpayer by the date promised.
  • Possibly due to a lack of experienced staff, some centralized offer in compromise centers (COIC) represented a greater portion of the inventory backlog than others.
  • Accepted reconsiderations of offers returned after encountering processing errors were often recorded as received on the date when COIC employees established the new offer, and not the date when the taxpayer provided the required documentation.

In conjunction with its findings, TIGTA made several recommendations

  • Update the Combo A letters the OIC staff sends to taxpayers to reflect a more realistic number of days they may expect to wait for OIC staff to initiate contact.
  • Monitor unassigned offers on a weekly basis to ensure they would not be held up in the queue.
  • Offers that have been in the inventory for the longest time should be reassigned, as needed.
  • Ensure COIC employees are properly trained to follow the correct procedures for offer reconsiderations.

The IRS agreed with all TIGTA recommendations and stated it would take action to implement them.

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