Posted On January 21, 2017

Making an offer in compromise (OIC): Can the process be improved?

One of our recurring themes in this blog is that an offer in compromise can enable you to settle your tax debt with the IRS for less than the full amount you owe.

To be sure, the IRS doesn’t have to agree to your offer. That’s why it makes sense to work with a tax attorney to prepare it carefully.

But is the IRS doing all it can to make the OIC application process as effective as possible?

A report from the Treasury Inspector General for Tax Administration (TIGTA) – the government’s official watchdog official for the IRS – suggested there are improvements that could be made in the OIC program.

TIGTA’s report noted that the IRS has made some progress in making the process of applying for an OIC work better. For example, the IRS has set up an online prequalifier tool, which you can use to find out whether you may be eligible for an OIC.

The tool asks questions such as whether you have filed all of your federal tax returns and whether you are up to date on all required estimated tax payments.

The IRS has also revised the application materials for an OIC, particularly Form 656.

TIGTA found, however, that the IRS sometimes fails to do the initial processing of OICs in a timely manner. This processing is supposed to be done within 16 days.

The IRS also sometimes fails to contact applicants with the specified period of 120 days or to properly follow up with letters when processing delays occur.

TIGTA also found that in cases where an OIC was rejected, the IRS has often failed to document that it engaged the taxpayer in considering other options for resolving tax debt.

The IRS has acknowledged the validity of TIGTA’s concerns and is working to improve the OIC program.