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Treasury Inspector General for Tax Administration Performs Audit

The Treasury Inspector General for Tax Administration performed an audit on the OIC program in an attempt to discover why there has been a 28 percent increase in the number of requests for offers in compromise. The results found that the weak economy, combined with efforts by the IRS to promote its OIC program, has increased the number of requests. The resources that are available to work on these offers has actually decreased, which has delayed the responses to taxpayers.

The OIC is an agreement between a taxpayer and the Federal Government that settles a tax liability for payment of less than the full amount owed. The TIGTA found that the IRS did not always contact taxpayers when promised, and inventory backlogs caused processing delays.  Such delays could impact financial and business decisions because taxpayers do not know if or when their tax liabilities will be resolved. TIGTA decided to do the audit because from 2001 to 2009, National Taxpayer Advocate reported the OIC Program as one of the most serious problems facing taxpayers.  This audit was initiated to assess the effectiveness of the OIC Program to timely process requests, consistently apply OIC guidelines, accurately measure Program results, and effectively promote the Program.

TIGTA found that in 73 out of 99 requests, or 74 percent, the IRS failed to contact the taxpayer by the promised date. TIGTA also found that one processing site had more than four times as many unassigned offers from self-employed taxpayers compared with the other site, and 37 percent of the offers were more than six months old.

TIGTA also determined that an incorrect date was used when offers were returned to the IRS because of IRS processing errors.  TIGTA estimates that the wrong date may have been used for 712 taxpayers who submitted offers between July 1 and December 31, 2010.

“TIGTA’s review found that the Internal Revenue Service has taken positive steps to improve and promote the offer in compromise program,” said TIGTA Inspector General J. Russell George in a statement. “Now, current backlogs in the program make it imperative that the IRS implement needed improvements.”

Finally, the IRS does not have formal performance measures for streamlined offers, making it difficult for a set standard of operations to be enforced for this program.

TIGTA had a few recommendations as to how to fix these issues. TIGTA recommended that the IRS revise its OIC processing procedures, train employees, and add a formal performance measure for the streamlined offers or apply the streamlined process to all offers.

IRS officials agreed with TIGTA's recommendations and the report's outcome measures and plan to take appropriate corrective actions.

Faris R. Fink, commissioner of the IRS’s Small Business/Self-Employed Division, said, “We concur that the weak economy and efforts to promote the OIC program have resulted in a 28 percent increase in receipts since 2007. This increase, along with resource limitations, has led to a backlog of inventory.”

The IRS plans to better inform taxpayers by lengthening the time by which they will be contacted or issued an interim letter, initiate reassignment of offers between IRS sites as needed, and apply most aspects of the streamlined process to the remainder of the OIC cases.

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