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Treasury Inspector General for Tax Administration

Press Release

April 12, 2012
TIGTA - 2012-13
Contact: David Barnes
(202) 622-3062

TIGTA Report: Increasing Requests for Offers in Compromise Have Created Inventory Backlogs and Delayed Responses to Taxpayers

WASHINGTON -- The combined impact of a weak economy and efforts by the Internal Revenue Service (IRS) to promote the Offer in Compromise (OIC) Program has increased the number of requested offers by 28 percent between Fiscal Year 2007 and Fiscal Year 2011. At the same time, the resources available to work the offers have decreased, creating an inventory backlog and delaying responses to taxpayers.

Those are the findings of a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

An offer in compromise (OIC) is an agreement between a taxpayer and the IRS to settle a tax liability for payment of less than the full amount owed. TIGTA's 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's review found that the Internal Revenue Service has taken positive steps to improve and promote the Offer in Compromise Program," said J. Russell George, Treasury Inspector General for Tax Administration. "Now, current backlogs in the program make it imperative that the IRS implement needed improvements."

TIGTA reviewed a statistically valid sample of offers and found that the IRS did not process all offers timely. In 73 (74 percent) of 99 offers, the IRS failed to contact the taxpayer by the promised date. The report estimates that 9,509 taxpayers who submitted offers between July 1 and December 31, 2010, may not have been contacted when promised.

Additionally, as of October 25, 2011, there were 7,472 unassigned offers in holding queues awaiting assignment to OIC staff. TIGTA 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 auditors also determined that an incorrect date was used when offers were returned to the IRS because of some IRS processing errors. The report estimates that the wrong date may have been used for 712 taxpayers who submitted offers between July 1, 2010, and December 31, 2010. Finally, the IRS does not have formal performance measures for the streamlined offer process, which allows IRS employees to make taxpayer contact by telephone rather than by mail so they can quickly make a determination on an OIC request.

TIGTA recommended that the IRS revise 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. Specifically, the IRS plans to: 1) better inform taxpayers by lengthening the time by which they will be contacted or issued an interim letter, 2) initiate reassignment of offers between IRS sites as needed, and 3) apply most aspects of the streamlined process to the remainder of the OIC cases.

Read the report.


Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

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