Partial payments required for offer in compromise

COMREP ¶ 71,221.008 Partial payments required with submission of offers-in-compromise. (Tax Increase Prevention and Reconciliation Act of 2005, , PL 109-222, 5/17/2006)

Conference Report

Present Law

The IRS has the authority to compromise any civil or criminal case arising under the internal revenue laws. ⁴⁰¹ In general, taxpayers initiate this process by making an offer-in-compromise, which is an offer by the taxpayer to settle an outstanding tax liability for less than the total amount due. The IRS currently imposes a user fee of $150 on most offers, payable upon submission of the offer to the IRS. Taxpayers may justify their offers on the basis of doubt as to collectibility or liability or on the basis of effective tax administration. In general, enforcement action is suspended during the period that the IRS evaluates an offer. In some instances, it may take the IRS 12 to 18 months to evaluate an offer. ⁴⁰² Taxpayers are permitted (but not required) to make a deposit with their offer; if the offer is rejected, the deposit is generally returned to the taxpayer. There are two general categories ⁴⁰³ of offers-in-compromise, lump-sum offers and periodic payment offers. Taxpayers making lump-sum offers propose to make one lump-sum payment of a specified dollar amount in settlement of their outstanding liability. Taxpayers making periodic payment offers propose to make a series of payments over time (either short-term or long-term) in settlement of their outstanding liability.

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⁴⁰¹

  Sec. 7122.

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⁴⁰²

  Olsen v. United States, 326 F. Supp. 2d 184 (D. Mass. 2004).

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⁴⁰³

  The IRS categorizes payment plans with more specificity, which is generally not significant for purposes of the provision. See Form 656, Offer in Compromise, page 6 of instruction booklet (revised July 2004).

House Bill

No provision.

Senate Amendment

The provision requires a taxpayer to make partial payments to the IRS while the taxpayer's offer is being considered by the IRS. For lump-sum offers, taxpayers must make a down payment of 20 percent of the amount of the offer with any application. For purposes of this provision, a lump-sum offer includes single payments as well as payments made in five or fewer installments. For periodic payment offers, the provision requires the taxpayer to comply with the taxpayer's own proposed payment schedule while the offer is being considered. Offers submitted to the IRS that do not comport with these payment requirements are returned to the taxpayer as unprocessable and immediate enforcement action is permitted. The provision eliminates the user fee requirement for offers submitted with the appropriate partial payment.

The provision also provides that an offer is deemed accepted if the IRS does not make a decision with respect to the offer within two years from the date the offer was submitted.

The Senate amendment authorizes the Secretary to issue regulations providing exceptions to the partial payment requirements in the case of offers from certain low-income taxpayers and offers based on doubt as to liability.

Conference Agreement

The conference agreement includes the Senate amendment provision, with the following modifications. Under the conference agreement, any user fee imposed by the IRS for participation in the offer-in-compromise program must be submitted with the appropriate partial payment. The user fee is applied to the taxpayer's outstanding tax liability. In addition, under the conference agreement, offers submitted to the IRS that do not comport with the payment requirements may be returned to the taxpayer as unprocessable.

Effective Date

The provision is effective for offers-in-compromise submitted on and after the date which is 60 days after the date of enactment.

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