Offer in Compromise Program partial payment requirement - time to repeal it

The Offer in Compromise partial payment requirement is hurting taxpayers who want a fresh start. An Offer in Compromise benefits the government by collecting money it would not otherwise collect. An accepted Offer in Compromise concurrently provides the taxpayer a fresh start. A condition to the Offer in Compromise is that the taxpayer must also file and pay their taxes for five years after an offer is accepted.  However, taxpayer participation in the offer program is being reduced because of the Offer in Compromise partial payment requirement. Waivers can be obtained for the Offer in Compromise partial payment requirement, but only in limited situations.

A a current impediment to the offer in compromise program is the requirement that taxpayers who would like to consider a “lump sum” offer (payable in five or fewer installments), must include a non refundable partial payment of 20 percent of the amount of the offer. For “periodic payment” offers (an offer payable in six or more installments), a first proposed installment is required with the application, and continued monthly payments are to be made while the IRS is considering the proposal. Additionally, the IRS requires that a user fee be paid. The partial payment requirement and user fee can be waived for taxpayers with low incomes (less than 250 percent of the Federal poverty level).

The Treasury Department (report in 2017) has estimated that repealing the requirement of the Offer in Compromise partial payment would have a positive revenue impact since it may be substantially reducing access to the offer program. This is further supported by 2005 Treasury Inspector General for Tax Administration report finding that when the IRS first imposed a $150.00 Offer in compromise fee, offer submissions declined by more than 20 percent among taxpayers at every income level. Accordingly, the partial payment requirement is likely causing a decrease in collections by the government and increasing the costs of collection.

The Taxpayer Advocate has recommended that the Internal Revenue Code be amended to remove the requirement that taxpayers include a partial payment with “lump-sum” and “periodic payment” offers. [See National Taxpayer Advocate PURPLE BOOK, December, 2017].

When you need help for your Offer in Compromise, call 1-866-482-9767