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Tax practitioners are well aware of the difficulty taxpayers face when filing an offer in compromise. IRS statistics have shown the longstanding truth - that a large number of offers have been traditionally rejected principally because they have been termed "nonprocessable" by an IRS Revenue Officer.

According to Tax Notes Daily (dated September 25, 1998), the Internal Revenue Service will soon implement dramatic changes in the offer in compromise program, changes which the agency claims will substantially reduce the number of offers being rejected as "nonprocessable."

For purposes of its September 25 article, Tax Notes Daily interviewed Mr. Harry Manaka, National Director of the IRS Office of Collection Field Operations. Mr. Manaka states that (in the future) offers will be returned upon receipt by the agency only to the extent the taxpayer is in bankruptcy or has not filed all income tax returns to date. Moreover, Manaka told Tax Notes Daily that "Our plan is to take everything else in for processing . . . We will work with practitioners and taxpayers to at least make the offer application processable."

By cutting down on the number of offers deemed as "nonprocessable," this new policy should help tax professionals and their clients immensely. Once a Revenue Officer determines an offer to be processable, but subsequently rejects the offer for some reason, the taxpayer who filed the offer will gain an automatic right to appeal the rejected offer. IRS does not provide taxpayers with an automatic right to appeal an offer deemed to be"nonprocessable."

The IRS is considering revising the Form 656, offer in compromise. IRS officials are considering redrafting Form 656 to provide taxpayers with specific instructions on how to appeal a rejected offer. The offer in compromise instructions will inform taxpayers on where to file the offer and when tax refunds will be retained by the IRS.

The Tax Notes Daily article indicates Mr. Manaka is the chair of an IRS task force on offers in compromise, a panel composed of representatives from the IRS Collection Division, the Office of Taxpayer Advocate, IRS Appeals, and the Office of Chief Counsel.

Other changes under consideration by the task force include the insertion in the Form 656 instructions of a discussion about the quick sale value of assets for computing a minimum offer. The IRS is considering permitting taxpayers to "discount" the market value of assets by as much as 20% for purposes of determining an asset's quick sale value. Another significant change under consideration involves the method the IRS uses to determine the present value of future income. The IRS task force is considering recommending the use of 48 months for determining the present value of future income for the taxpayer instead of the current 60 month standard. Further, the agency is likely to improve the level of relief for innocent spouses with respect to offers.

Tax professionals should not believe all the proposed modifications in the offer in compromise program will remain "pro taxpayer." The IRS task force is considering making a recommendation that paid preparers sign the offer. Also, the task force is reviewing the feasibility of increasing the processing time for offers from 6 months to 9 months. By increasing the processing time, the IRS hopes to provide taxpayers with sufficient opportunities to "correct" problems associated with the information submitted on Forms 433-A and 433-B, the Collection Information Statements for Individuals and Businesses, and on the Form 656.

The new offer program may also include the use of offer in compromise specialists for purposes of processing offers. Task force members believe this would standardize the level of competency of IRS employees working on offers, and it would provide consistency to the program on a nationwide basis.

Tax Notes Daily reports that there are a number of additional recommendations being considered by the task force to "improve" the offer program, recommendations which are in their early stages of review. One recommendation suggests the IRS provide offer in compromise seminars to educate taxpayers about the offer program. Another idea is for IRS personnel to have greater access to the IRS's Automated Lien System to provide these government workers with the ability to timely release a tax lien as soon as the taxpayer pays the offer amount.

The above recommendations for reform of the offer program stem only in part from passage of the IRS Restructuring and Reform Act of 1998. Of significance, the new law mandates that the IRS cannot reject an offer solely based on the amount a taxpayer may offer to settle a tax liability.

IRS Announces New Procedure on Handling Bankruptcies

The IRS has released Ann. 98-89, an announcement which states the IRS has implemented steps to improve the agency's procedures in handling bankruptcy cases. Ann. 98-89 states "The new procedures are intended to minimize the likelihood that IRS collections actions will inadvertently violate the bankruptcy laws, to facilitate prompt correction of any violations that do occur, and to provide an administrative process for handling any claims for damages against the IRS that arise from such violations."

According to the announcement, the IRS has designated specific points of contact for handling violations of the bankruptcy laws by agency employees. The point of contact to discuss these types of problems is the Special Procedures Function (SPF) in the local IRS Collection office. The IRS expects to notify bankruptcy practitioners of the address in each IRS district office regarding where bankruptcy matters can be discussed.

The IRS Restructuring and Reform Act of 1998 provides debtors with the right to recover damages for actual economic losses they sustain as a result of a willful violation of the bankruptcy laws by IRS employees. The debtor also has a right to recover attorney fees in some cases. The IRS has setup a pilot program to provide individuals with a method for filing such claims with the IRS as opposed to having to file the claim with the Bankruptcy court.
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Author:Goldstein, Benson
Publication:The National Public Accountant
Date:Dec 1, 1998
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