March 29, 1999
IRS Breaks Down Barriers
for New Offer in Compromise Program,
Expands Access for Taxpayers
WASHINGTON - The Internal Revenue Service is ushering in a new era
for struggling taxpayers unable to pay their tax bills by expanding the
Offer in Compromise program.
With this week’s publication of revised tax Form 656 and an array of
internal IRS changes underway, the agency is fundamentally changing the
Offer in Compromise program. These steps will make it easier for
taxpayers to apply for help and allow the IRS to be more flexible when
considering taxpayer offers to settle tax bills.
“We’re breaking down the barriers for the Offer in Compromise program,”
IRS Commissioner Charles O. Rossotti said Monday. “We’re making the new
rules flexible and making it easier for taxpayers to qualify for the
For taxpayers facing dire financial circumstances and are unable to pay
the entire tax bill, the Offer in Compromise program allows the IRS to
negotiate a settlement. For taxpayers, the settlement offer must reflect
the maximum amount they can pay after basic living expenses. The IRS may
accept the taxpayer’s offer under certain conditions prescribed by law.
“In the end, this helps all taxpayers,” Rossotti said. “Instead of
collecting nothing from people with an unpaid tax bill, we’re able to
collect something. And for taxpayers facing severe hardship, we’ll work
with them to help find a way to satisfy their tax obligations.”
The IRS Restructuring and Reform Act approved last year by Congress and
President Clinton called for an expansion of the Offer in Compromise
program. It’s one of several new taxpayer rights provisions being put in
place by the IRS.
In the past, only a relatively small number of Offers in Compromise have
been accepted. In fiscal year 1998, only 25,052 offers out of 105,255
were accepted, leading to the collection of $290 million out of $1.9
billion in outstanding tax bills.
Under the changes being made at the IRS, the Offer in Compromise program
will feature more straightforward rules, increased flexibility by key
agency employees and fewer rejections of compromise offers. Even more
changes will unfold in the weeks and months ahead.
“We want to work with taxpayers to make it simpler for them to apply for
an Offer in Compromise,” Rossotti said. “The process will be streamlined
to make more and more people eligible.”
The program will feature new flexibility in evaluating taxpayer
expenses. In the past, the program frequently relied on local and
national standards for evaluating cost-of-living expenses – a key
element in determining how much a taxpayer can afford to pay through the
But the new guidelines allow IRS employees more freedom to assess an
individual’s particular financial hardship beyond the standard
cost-of-living formulas. The move will help guarantee a taxpayer can
still afford basic living expenses while paying the tax bill.
Among the other OIC changes being made by the IRS:
New, flexible IRS rules for processing taxpayer offers. Instead of the
old, stringent application guidelines that often led to immediate
rejections, the IRS will now work with taxpayers to fine tune their
compromise offers – a step that will lead to accepting more offers.
Less documentation. Taxpayers will be asked to provide fewer financial
documents to qualify for smaller compromise offers.
New payment procedures. New deferred payment procedures provide more
opportunities for compromise offers to be submitted by taxpayers who may
have been excluded under the old guidelines. And a short-term deferred
payment option allows taxpayers up to two years to pay the compromise
Specially trained IRS experts will be devoted to handling compromise
offers. These new offer specialists will bring more consistency to the
offer program and centralize offer processing.
New independent reviews for each rejected compromise offer. These
administrative reviews assess whether rejection is in the best interest
of the taxpayer and the government.
These new procedures will be included in an updated version of the
agency’s Internal Revenue Manual, which is expected in April.
In addition, other changes will be reflected in the new version of Form
656, the Offer in Compromise application. The new form is available on
the IRS web site at www.irs.ustreas.gov.
Among the changes reflected on the new form:
For payments made within 90 days, compromise offers will now only
require 48 months of future income.
Clearer rules for evaluating assets of taxpayers. The new standards will
be more uniform, and the fair market value of assets will be reduced by
20 percent up front.
Innocent spouse protection for joint compromise agreements. New
protections will safeguard a spouse who complies with the agreement but
the other spouse defaults on payments.
More changes will unfold later this year, when the IRS and the Treasury
Department publish regulations covering a new element of the Offer in
Compromise program. The guidelines, which will create a new category of
compromise offers, will focus on equity and hardship factors affecting
taxpayers seeking compromise offers.
“This is an area where we must carefully balance the interests of the
taxpayers and the government,” Rossotti said. “We’re taking time to make
sure we get this right, so we can be fair to all parties.”
The combination of the new internal standards, the new Form 656 and the
new regulations means a new day for the Offer in Compromise program.
“If taxpayers are having problems with their bills, we want to work with
them to make this process as painless as possible,” Rossotti
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