NTA Blog: TAS Act Would Improve Efficiency and Reduce Processing Delays for Taxpayers Requesting an Offer in Compromise (OIC)

 

 

On January 30, 2025, Senator Mike Crapo, chairman of the Senate Finance Committee, and Senator Ron Wyden, the Committee’s ranking member, jointly released a discussion draft of the Taxpayer Assistance and Service (or “TAS”) Act. The TAS Act is a broad and sweeping bill aimed at improving tax administration. Of the 68 provisions, about 40 of them reflect legislative recommendations that I have made in my current and past Reports to Congress and Purple Books. I previously discussed the significance of this potential legislation in terms of enhancing taxpayer rights. Over the course of several blogs, I’ve been highlighting some key provisions that, if ultimately enacted, would strengthen taxpayer rights and improve IRS operations. One such provision is Section 111, which focuses on making the IRS’s Offer in Compromise (OIC) program more efficient.

 

What is an Offer in Compromise?

An OIC is an agreement between the IRS and a taxpayer to settle tax liabilities for less than the full amount owed. The overwhelming majority of OICs are submitted because the taxpayer says they cannot afford to pay the full tax liability within a reasonable time or doing so would create a financial hardship. In these cases, the IRS decides whether to accept an OIC primarily by performing a financial analysis that compares the taxpayer’s ability to pay (based on income and assets) with the taxpayer’s allowable living expenses.

 

Processing Time

One factor contributing to the delays in processing many OICs is a statutory requirement that the Treasury Department’s General Counsel review and provide an opinion for accepted OICs in all criminal cases and in all civil cases where the amount of unpaid tax assessed (including any interest, additional amount, addition to tax, and assessable penalty) is $50,000 or more. The IRS Office of Chief Counsel exercises this authority, and during fiscal year 2024, it accepted 46 OICs in criminal cases and 2,918 OICs in civil cases where the amount of unpaid tax assessed (including any interest, additional amount, addition to tax, and assessable penalty) was $50,000 or more.

 

The time it takes to process an OIC also depends in part on whether the taxpayer provides the necessary materials and financial information, such as:

• Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
• Form(s) 656, Offer in Compromise;
• $205 application fee (non-refundable); and
• Initial payment (non-refundable) for each Form 656.

 

Even when the taxpayer supplies everything required with the initial offer, (like Form 433-A or 433-B, Form 656, the $205 application fee, and an initial payment) the IRS can still take several months and in some cases more than a year to fully review and process an OIC. Delays in OIC processing may impede a taxpayer’s ability to make other financial decisions while awaiting a response and may even jeopardize the taxpayer’s ability to pay the amount offered if their financial circumstances deteriorate while the IRS reviews the offer.

 

Section 111: A Smarter, Targeted Approach

Section 111 of the TAS Act would repeal the blanket requirement that the Office of Chief Counsel review all civil OICs with $50,000 or more in assessed tax debt. Instead, it would give the Secretary of the Treasury the discretion to determine when a legal opinion is necessary allowing the IRS to focus legal resources on complex or novel cases, rather than routine ones.

 

The IRS’s significant commitment of legal resources is often duplicative of work it has already performed and diverts Counsel attorneys from performing their core legal work. In complex cases and cases that present novel legal issues, an opinion from a Chief Counsel attorney may provide significant value. However, very few OICs present significant legal issues; thus, requiring an Office of Chief Counsel attorney to provide an opinion in run-of-the-mill criminal cases and civil cases with ordinary issues only because the amount of unpaid tax assessed is $50,000 or more is not an efficient use of government resources.

 

The Office of Chief Counsel reports that it spends over 6,000 hours each year reviewing OICs. The time Counsel employees spend reviewing and learning the facts in these cases creates significant delays in OIC processing that can harm taxpayers and impact their ability to avoid financial hardship while resolving their tax debt. This one change would reduce processing delays, free up legal resources, and help taxpayers get faster resolution of their cases, and would better serve taxpayers if the IRS allocates those resources elsewhere.

 

Final Thoughts

Section 111 of the TAS Act reflects a commonsense improvement to the Offer in Compromise process. By aligning IRS resources with the complexity of cases, this provision would help more taxpayers resolve their tax debts efficiently and avoid unnecessary financial hardship. Consistent with my recommendation in the National Taxpayer Advocate Purple Book, I support Section 111 and I hope to see it enacted as part of the broader TAS Act. By aligning IRS resources with the complexity of cases, this provision would help more taxpayers resolve their tax debts efficiently and avoid unnecessary financial hardship.

 

 

Resources

• Crapo, Wyden Issue Discussion Draft to Improve IRS Administration
• Purple Book Legislative Recommendation: Modify the Requirement That the Office of Chief Counsel Review Certain Offers in Compromise
• Offer in Compromise

 

 

 

The post TAS Act Would Improve Efficiency and Reduce Processing Delays for Taxpayers Requesting an Offer in Compromise appeared first on Taxpayer Advocate Service.