IRS Experiencing Backlog in Processing Offers in Compromise

In March 2012 the Treasury Inspector General for Tax Administration issued a report showing that the Internal Revenue Service is not meeting its goals in processing requests made by taxpayers under the Offer in Compromise program. The TIGA's office conducted an audit of the OIC program after the National Taxpayer Advocate had reported from 2001 through 2009 that the OIC program was one of the most serious problems taxpayers encountered when dealing with the IRS. Taxpayers should be aware of what the OIC program is, how the OIC program can help those with tax debts and reasons the IRS is having trouble processing requests.

Offer in Compromise Program

The OIC program is a way for people with tax debts to settle their accounts with the IRS for less than the full amount they owe if paying the whole amount would create a financial hardship for the taxpayer. The taxpayer makes an offer for an amount he or she can afford and the IRS will generally approve the offer if it is the most money that the IRS could expect to collect from the taxpayer within a reasonable amount of time.

The IRS assesses each taxpayer's ability to pay on an individual basis when deciding whether to accept the offer. Some of the factors the IRS uses to assess collection potential from a taxpayer include a person's:

  • Current ability to pay
  • Income
  • Expenses
  • Equity in assets

Delays in Responding to Requests

A number of factors have combined to create the backlog in the IRS review of offers. More people are taking advantage of the OIC program. The audit showed that the IRS received 59,411 new offers in 2011 alone - a 28 percent increase from the number of offers in 2007. The poor economy is motivating more people to look for as many debt relief options as possible, including settling tax debts.

The IRS also simplified the OIC process and made changes to allow more people to qualify for assistance from the program. At the same time, the IRS has cut the number of staff members who deal with offers. The increased number of applications and fewer people reviewing them has created a backlog. The backlog in offers has increased by 57 percent from 2007 to 2011.

Talk to an Attorney

While the IRS is easing qualification requirements for accepting settlement offers from taxpayers under the OIC program, making an offer can still be a complicated process. People interested in settling tax debts with the IRS should seek the assistance of an experienced tax attorney who can advise them of all of their options.