December 29, 1999
IRS Simplifies Offer-In-Compromise Program,
Provides Fixed Monthly Payment Option
WASHINGTON - In another step to improve
the way the collection process works while respecting taxpayer rights, the Internal
Revenue Service announced Wednesday a new, simplified method of settling taxpayer
debts under the Offer-in-Compromise program.
The Offer-in-Compromise programís purpose is to settle tax debts for the
maximum amount that a taxpayer can pay. In some cases, the taxpayer is best
able to settle the debt by paying it off over a period of time. The new, simplified
offer will provide taxpayers a fixed monthly payment option, ending uncertainty
about converting offer amounts into monthly payments.
This new method will also assist taxpayers and practitioners in situations
where taxpayers are willing to pay their debts, but the maximum amount they
can pay is not sufficient to pay off the full amount of the debt. In this situation,
taxpayers are not eligible for ordinary installment agreements, but they will
be eligible for the new, fixed monthly payment option under the Offer-in-Compromise
program. The IRS anticipates that this will not only help taxpayers but will
also translate into increased collections in these situations.
"This is a common-sense approach for everyone involved," IRS Commissioner
Charles O. Rossotti said. "The change eliminates headaches and uncertainty for
taxpayers and tax practitioners by simplifying the process." The switch is being
made in conjunction with other changes, such as revising Form 656 (Offer in
Compromise) to include Form 656-A (Additional Basis for Compromise). The changes
are aimed at simplifying the Offer-in-Compromise program, which allows the IRS
to negotiate a settlement with people facing financial circumstances in which
they cannot pay their entire tax bill.
Taxpayers can propose an Offer in Compromise to the IRS, which generally
must reflect the maximum amount they can pay after basic living expenses.
The IRS can accept the taxpayerís Offer in Compromise when there is doubt
about whether the tax debt could ever be collected or whether it was owed. Under
changes made in the IRS Restructuring and Reform Act of 1998, some taxpayers
can also qualify for a special type of Offer in Compromise in cases where settlement
would promote effective tax administration, including situations involving severe
or unusual economic hardship.
The latest change to streamline the program eliminates confusion associated
with interest calculations for deferred Offer-in-Compromise payments.
Under the old system, the interest could be adjusted up to four times a
year. With deferred payments spread out for up to 10 years, this created complicated
calculations and uncertainty for the IRS, tax practitioners and taxpayers. It
also meant the IRS had to leave room at the back end of the deferred payment
plans to factor in interest. This interest uncertainty kept the IRS from collecting
the maximum amount possible.
Under the new system, the IRS will now be able to precisely calculate the
exact amount the person will owe during the life of the Offer-in-Compromise
payments - without any of the uncertainty and imprecision involved with fluctuating
interest rates. This new fixed monthly payment option means the IRS will be
able to collect the maximum amount the taxpayer can pay. "This cuts through
the red tape and still allows the Offer in Compromise to be paid in full," Rossotti
said. "The tax debt is settled, and the taxpayers get a fresh start."
The IRS will adopt the same fixed-payment policy for taxpayers choosing
the other two Offer-in-Compromise payment options - cash or short-term payments.
The fixed payment combines all debts, including interest, owed by the taxpayer
under the Offer in Compromise terms into a single payment, which reflects the
maximum the taxpayer can pay after covering basic living expenses.
The statutory requirement for interest accrual will remain in place. If
taxpayers default on their Offer-in-Compromise agreement, the entire tax liability
will be reinstated, along with interest and penalties. Taxpayers will also be
responsible for interest accrued after they entered into the agreement.
The IRS is also making changes in two other areas involving the program:
All instructions for an Offer in Compromise will now be contained in the new
Form 656 package. This consolidated package will replace Form 656-A, which appeared
as a new, separate form earlier this year. This means that taxpayers who previously
had to fill out two forms - 656 and 656-A - will now just fill out one.
The waiver provision for suspension of the collection statute will be removed.
Effective Jan. 1, 2000, the collection statute - the time the IRS has to collect
the balance due - will be suspended by law rather than by taxpayers signing
the waiver on Form 656. The suspension occurs while the IRS processes and reviews
the Offer in Compromise, plus 30 days, plus any time a rejected Offer in Compromise
is being appealed.
The changes mean that all Offers in Compromise submitted after Jan. 1, 2000,
must be on the new Form 656. A new copy of the form is available on the IRS
web site, www.irs.gov, under the "Forms and Pubs" section. Under other changes
made earlier in 1999 by the IRS, the Offer in Compromise program features more
straightforward rules and increased flexibility by key agency employees.
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