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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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After a short but welcome honeymoon period during which the IRS absolutely reversed its decades-long historical resistance to granting offers, it now appears as if the agency has returned to its old ways, making offer in compromise again the most difficult alternative for a taxpayer to resolve his or her un-payable debts.

There is simply no doubt that Examiners of Offer in Compromise, and their Appeals Officer counterparts conducting Collection Due Process hearings, have adopted a more reductive, across-the-board scrutiny of offer proposals over the past several months in order to discourage taxpayers from pursuing them.  Here are just a few of the most obvious examples:

  1. Summary "returns" of offers – without appeal rights - when the OIC processing clerk unilaterally determines that the taxpayer is "not in compliance" due to insufficient estimated tax payments made for the current tax year.
  2. For cases in a specific Revenue Officer’s jurisdiction, field determinations that the offers are being submitted "for delay purposes", again resulting in summary returns of the offers, without any appeal rights.  And yeah, the IRS keeps the filing fee and 20% deposit.
  3. Offer Examiners disregarding the 12 month-multiple (and bank account/vehicle exemption offsets) when they determine that the taxpayer could "full-pay" over the remaining months left on the 10-year collection statute – an approach blatantly inconsistent with Offer in Compromise forms and instructions.

It’s hard to conclude that the IRS is employing these draconian measures for any reason other than that the examiners are being told by management that too many offers are being granted, too easily.  Whether this constitutes deliberate, justified enforcement policies, based on frustration with the never-ending flow of submissions by offer mills (many of which admittedly reek of frivolity), or perhaps a targeted response to the specific tactics adopted by those "tax debt relief" firms, there is no doubt that the IRS is making life harder for deserving taxpayers who seek the fresh start promised by the offer in compromise program.

To be sure, we are still getting most offers granted on behalf of our clients.  But the environment has become much less inviting, and we often spend significant time persuading offer examiners to not arbitrarily prejudge the taxpayer and his or her unique situation.  The unintended consequence of these policies is that, when a taxpayer is represented by a knowledgeable, committed tax attorney, there is more, rather than less, managerial involvement and overall time spent on the offer processing.   Clearly, not what the IRS wants or needs at this point.

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