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OFFER-IN-COMPROMISE LEGISLATION - STREAMLINING THE PROCESS, OR SINKING IT?

July 08, 2005

Taxpayers who are unable to pay their tax liabilities can sometimes get some of their taxes forgiven under the "offer in compromise" program. If they work out a deal with the IRS, they pay a reduced amount, sometimes over an extended period.

While we haven't worked with the process, friends who handle these cases say the process is very slow and difficult. Part of the slowness is blamed on frivolous offers by taxpayers who can pay up, but just don't want to.

Legislation is in process to address the problem by making taxpayers pay up part of the payments up front. Attorney Kreig Mitchell says the legislation requires taxpayers to:

1. Submit non-refundable up-front lump-sum payments equal to twenty-percent of the offer if the offer proposes a payment schedule of five or fewer installments or

2. Submit non-refundable installment payments equal to the installments that are proposed in the offer beginning when the offer is submitted and continuing until the IRS accepts the offer – no matter how long that may be.

Mr. Mitchell thinks this is a bad idea; he says it is unfairly punitive and will ultimately reduce tax revenues.

I'm not so sure. If the cash payment requirement clears the bogus offers out of the system, enabling real offers to get prompt consideration, it could well be worthwhile. The current OIC system is broken, largely because of meritless claims. The taxes being settled are actually due and owing, after all, and requiring partial payment to earn consideration for waiving an admitted tax liability doesn't sound unreasonable.

But Mr. Mitchell disagrees; you'll want to read his thoughtful post on this.

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