IRS Offers in Compromise: Performance Has Been Mixed; Better Management Information and Simplification Could Improve the Program
GAO-06-525
Published: Apr 20, 2006. Publicly Released: May 23, 2006.
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Highlights
Taxpayers unable to fully pay their tax liabilities may apply for an offer in compromise (OIC), an agreement with IRS to pay what they can afford. IRS writes off the rest of the liability. In 2005, IRS accepted over 14,000 offers. Because of concerns about program performance and a new category of offers based on exceptional circumstances, GAO was asked to (1) describe the trends in program's performance and their causes and (2) determine whether IRS's regulations for exceptional circumstance offers are consistent with statute. GAO examined five program objectives: timeliness, quality, accessibility, compliance, and cost.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If Congress's intent regarding the number of ETA non-hardship offers has not been bet to date, Congress may wish to provide IRS with more specific guidance on the criteria for such offers. | As of May 2 2010, the Congress had not taken any action related to it. It is not expected that any action will occur. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To immediately improve the OIC program, the Commissioner of Internal Revenue should adjust staffing levels to increase productivity and reduce cost per offer, unless IRS can demonstrate that case complexity has increased and eliminate the distinctions between hardship effective tax administration (ETA) and doubt as to collectibility in the application, instructions, and procedures to simplify the program. | IRS agreed with our recommendation stating that staffing levels should be adjusted in response to changing program needs and that realignment of staff working offer in compromise cases in field locations would be done. As of August 2006, IRS had reassigned 112 field offer staff to other collection work. Also, IRS information showed that the number of new cases added to its offer in compromise inventory in fiscal year 2006 continued the prior years' trend by declining sharply. By reassigning the 112 staff, IRS improved the offer in compromise program's productivity, reduced cost per offer, and over a period of 2 years will save about $20.5 million in staff costs to be allocated to other...
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| Internal Revenue Service | The Commissioner of Internal Revenue should develop meaningful measures of performance, including a measure of processing timeliness for taxpayers, a measure of accessibility that gauges ease of participation in the programs, and a measure of compliance for all program participants. | IRS has taken actions to implement this recommendation. Regarding developing meaningful measures of performance for processing timeliness for taxpayers, IRS completed studies of repeat offers in June and July 2008 and found that repeat offers can best be reduced by getting taxpayers to submit a processable offer initially. According to an analysis by IRS as of June 2008, a vast majority of offers were meeting IRS's timeliness goals. As an added step, IRS also plans to work more closely with taxpayers during offer processing to help ensure that offer processing timeliness is at a minimum. Regarding developing meaningful measures of performance for accessibility, IRS used the results of a...
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| Internal Revenue Service | The Commissioner of Internal Revenue should set processing timeliness goals for taxpayers that are based on an assessment of taxpayer needs and other benefits. |
IRS agreed with this recommendation and stated that it takes taxpayer needs and other benefits into consideration as part of the basis for setting timeliness goals. In particular, IRS stated that it used the results of a 2006 customer satisfaction survey of taxpayers who participated in the offer in compromise (OIC) program in setting processing timeliness goals.
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| Internal Revenue Service | The Commissioner of Internal Revenue should conduct analyses of the reasons for performance trends in order to determine causes of the growth in repeat offers; determine how repeat offers affect timelines and, if justified based on the results, take action to meet timeliness goals; determine the reasons for trends in accessibility; and determine the effectiveness of the Hand-Off Unit. | IRS conducted two studies to help determine reasons for performance trends, the causes of the growth in repeat offers, how repeat offers affect timelines, and used results of a 2006 customer satisfaction survey to help assess trends in accessibility. Office of Program Evaluation and Risk Analysis (OPERA) completed a study of repeat offers in June 2008. Small Business/Self Employed conducted an independent representative sample of repeat offers in September 2007 to analyze their effect on timeliness. Based on the studies, IRS found that the key to reducing repeat offers is getting taxpayers to submit processable offers initially. IRS also stated that the new process-ability criteria...
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