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Underutilizing
Offers
(Korntved & Associates note: Underutilizing Offers: as submitted to
Congress by IRS office of Taxpayer Advocate)
One symptom of the problem that the IRS is underutilizing
available collection alternatives is illustrated by the decline in the number
of offers in compromise (OICs) received and accepted. As of the first seven
months of FY 2006, new OIC receipts have declined by 27 percent with new cases
at 33,034 compared to 45,199 for the same period during 2005. The most recent
decline in submissions continues a trend that began in FY 2003, as shown below.
OICs Received and
Accepted by Fiscal Year
Fiscal Year
Korntved &
Associates note: The average acceptance rates for all years are calculated
below:
·
2001 – 31%
·
2002 – 23%
·
2003 – 17%
·
2004 – 18%
·
2005 – 26%
·
2006 – 27% projected
(which will NEVER occur because of the current economic environment)
Korntved &
Associates note: THE CHART DOES NOT ACCURATELY REFLECT STATISTICS FOR ALL
TAXPAYERS.
The statistics
for the number of ‘OIC’s Received’ and ‘Accepted’
offers do not reflect IRS frivolous rejections
(ineligible, collection stall tactic, not processible,
etc.). These types of offers are sent back to the taxpayer without evaluation.
They are treated as never submitted and never rejected – i.e., not in any of
the statistical data.
Other types of
offers (unreasonably low, etc) treated as frivolous
rejections may or may not be included in ‘OIC’s
Received’ and ‘Accepted’ statistics. These rejections are NEVER evaluated even
when they are treated as an ‘OIC Received’. This type of frivolous rejection
may be a ‘never submitted’ or ‘submitted and rejected’. The ‘never submitted’
version is the most common type. It NEVER gets included in the statistical
data. The ‘submitted and rejected’ is ALWAYS included in the data and is always
a rejection.
If ALL offers
were properly evaluated the following two things would occur with the
statistics in the chart above:
The number of
‘OIC’s Received’ would be MUCH higher than listed.
The real number could be 10’s of thousands higher.
The acceptance rate would be MUCH lower than listed. The rate drop could be 15-20% lower.
The decline in offer submissions may be
due to an increasing realization among the public that the IRS does not
evaluate offers realistically and actually accepts very few – roughly 24
percent of the offers considered in the first seven months of FY 2006 – though
the acceptance rate has increased from 20 percent
during the same period in FY 2005.
Although the acceptance rate has
increased, however, the
number of offers accepted has decreased. (Korntved & Associates note: The number of accepted
offers can only DECREASE while the acceptance rates INCREASE IF the number of
SUBMITTED offers has dramatically declined. That is unfortunately, the IRS’s
primary goal.). The
IRS’s $150 OIC processing fee and revised OIC Form, which makes it more clear
when the IRS will not accept an offer, probably reduced the number of
unreasonably low OIC submissions and submissions from ineligible taxpayers.
Korntved & Associates note: The
mandatory $150 application fee and mandatory 20% down payment have affected the
number of submitted offers - although the 20% down payment fee can be mitigated
by submitting a very small offer amount. So the financial outlay should not
cause a dramatic drop in the number of submitted offers.
The law states the IRS can counter
any offer BUT the law emphatically states an individual may submit an offer for
any amount - period. The law does
Korntved & Associates assumes offers are still being sent to
the IRS (just like previous years) since so many taxpayers still owe the IRS
money. It follows that taxpayers are still currently trying to utilize the
settlement statute or they would have paid their taxes. Therefore, Korntved
& Associates has to also assume that the IRS has deemed MANY VALID OFFERS
for frivolous rejection – causing the distorted ‘OIC’s
Received’ and ‘Accepted’ statistics in the above chart.
Anyone reading this Taxpayer Advocate article has to have concern.
The IRS reports to Congress that they are currently accepting MORE offers than
before. Then the IRS says they can not figure out why taxpayers are not
submitting MORE offers in light of the fact that the IRS is accepting so many
of them. It does not make sense.
The IRS is currently going through its 3rd Treasury Secretary during the Bush administration, which indicates that recent changes in IRS procedure have caused ethical conflicts at the highest levels of the IRS. President Bush and his administration need more money for their agenda so they have pressured each Treasury Secretary to collect more funds through rejected offer and other collection tactic mechanisms. The IRS has struggled with changes BUT those changes are the force behind the IRS’s freedom for frivolous rejection.
It is truly an unfortunate situation all around because Congress
and the President should know that frivolous rejections would make the
statistics in the above report look much different. The report would be much
more useful because it would include ALL taxpayer statistics. Congress would
then be able to actually realize there is a problem – which would allow them to
step in and force the IRS to properly utilize the settlement statutes. That way
more revenues could be collected immediately and people could get on with their
lives.
However,
if you assume that the IRS only accepts realistic offers, the fact that the
number of offers accepted has declined from 38,643 in FY 2001 to 19,080 in FY
2005, and are projected to decline even further to 15,154 in FY 2006, suggests
that realistic offer submissions are also declining.
Only approximately 19,080 taxpayers had their offers accepted in FY 2005, and it appears that number will again decrease in FY 2006.
… The National Taxpayer Advocate finds it difficult to believe that an OIC would not be a reasonable collection alternative for many taxpayers…
However, we believe that the OIC continues to be a highly underutilized collection tool, and in FY 2007 we will be exploring the reasons why OICs and installment agreements are not being used more effectively to help taxpayers resolve their tax debts.