Tax Administration:

IRS Should Evaluate the Changes to Its Offer in Compromise Program

GAO-02-311: Published: Mar 15, 2002. Publicly Released: Mar 27, 2002.

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A growing backlog of cases and longer processing times have prompted concern about the management of the Internal Revenue Service's (IRS) Offer in Compromise (OIC) Program. OIC inventory and processing time have grown despite significant increases in program staff. Program changes increased the demand for offers, the number of processing steps, and the number of staff hours needed to process the case. Yet, the demand for offers exceeded staff's capacity to process them. The extent to which IRS' current initiatives would reduce the OIC Program inventory and processing time is uncertain. The current initiatives are intended to separate the processing of less complex and more complex offers, with lower-grade staff using standardized procedures to process less complex offers and higher-grade staff specializing in more complex offers. IRS projects that the initiatives will stabilize the inventory and keep up with the flow of new offers by the end of fiscal year 2002. IRS met the requirements of the IRS Restructuring and Reform Act of 1998 by independently reviewing all proposed offer rejections, considering the facts and circumstances of each taxpayer when determining allowances for monthly living expenses, and not rejecting offers from low-income taxpayers solely on the basis of the amount offered. IRS lacks data on the effect on taxpayers of its 1998 decision that the agency lacked the authority to enter into partial payment installment agreements. IRS officials said the policy change created a situation in which taxpayers who were willing to pay some of their tax liability might not qualify for either an installment agreement or an offer. According to these officials, the only other option was to put such taxpayers' accounts into inactive status.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The American Jobs Creation Act of 2004 (signed October 22, 2004) gave the IRS the authority to implement a partial payment installment agreement program (section 843). The IRS issued interim guidance to implement its program on January 17, 2005, including an assessment of the benefits to the public. The guidance included specific procedures for accepting, rejecting, reviewing, and monitoring the agreements. An assessment was made concerning the resources needed and the number of taxpayers impacted and an evaluation plan was established. The first case reviews under the evaluation plan are scheduled for October 2005.

    Recommendation: The Commissioner of Internal Revenue should prepare documentation for its proposal to allow partial payment installment agreements. The documentation should describe key features of the proposal, including the benefits to taxpayers; the processes for accepting, rejecting, reviewing and monitoring the agreements; resource needs; the number of taxpayers that could be affected; and plans for evaluating the impact of the program.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: Since GAO made its recommendation, the IRS significantly modified offer processing procedures and instituted several program changes to make processing more efficient. Offer processing times have dropped substantially as a result. For example, in fiscal year 2000, it took the IRS an average of 12.6 months to process a rejected offer compared to an average of 3.5 month in fiscal year 2005. Similarly, processing times for accepted offers dropped from an average of 10.6 months in fiscal year 2000 to an average of 4.5 months in fiscal year 2005. The current processing times are lower than the IRS 6 month processing goal.

    Recommendation: As IRS makes changes to its OIC Program, the Commissioner of Internal Revenue should set goals for offer processing time that are based on taxpayer needs, other benefits, and costs.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS collects various data for ongoing systematic monitoring of OIC program performance. This includes reports that track receipts, dispositions, inventory levels, and quality results of case processing. However, cost data are limited to the numbers of full time equivalent staff assigned to the program and aggregate hours all staff charged to the OIC program. In addition, IRS's Office of Program Evaluation and Risk Analysis completed a study in 2004 that provided additional performance data, including information on repeat offers and compliance. The study results were for specific points in time and not part of ongoing performance tracking.

    Recommendation: As IRS makes changes to its OIC Program, the Commissioner of Internal Revenue should determine which OIC Program performance and cost data should be collected to monitor program performance, given resource constraints, and ensure that such data are collected in a timely and reliable manner.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS developed an evaluation plan for fast track processing of less complex field cases and was planning to create an evaluation plan for centralized offer processing. IRS learned early in 2002 that the plans would not produce expected results and did not use OPERA to formally evaluate them as originally planned. Instead, in 2004, IRS completed a program review of centralized offer processing and the Treasury Inspector General for Tax Administration also reviewed centralized offer processing.

    Recommendation: As IRS makes changes to its OIC Program, the Commissioner of Internal Revenue should develop evaluation plans for the various offer initiatives that include details on data to be collected, data collection methods, basis for comparing outcomes, quality of decisions, and an analysis plan and move no new initiatives into implementation without a finalized evaluation plan.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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