IRS Seeks Fee For Processing Offers-in-Compromise

The Internal Revenue Service has issued a proposed regulation that, if adopted, will affect the agency's offers-in-compromise (OIC) program. The regulation, NPRM REG-103777-02, would impose a $150 filing fee on OIC applicants. The fee would not change the net amount paid by a taxpayer who successfully negotiates an OIC plan.

The OIC program gives the IRS discretion to accept a reduced amount in payment for tax obligations where there is little or no expectation of receiving the full amount due. Certain situations where there is doubt as to whether the taxpayer owes the tax bill also qualify for the OIC program. The proposed regulation imposes a fee that reimburses the IRS for some of the cost of processing OIC claims.

The $150 fee is substantially less than the cost to provide offers-in-compromise services as calculated by the IRS. The average estimated cost to investigate doubt as to liability and effective tax administration is $471 per case and can go as high as $3,983 where detailed investigations are required.

Should the regulation be adopted, certain low-income taxpayers would be exempt from the $150 fee, and OICs based on doubt as to liability only would also be exempt, as would OICs accepted for the purpose of promoting effective tax administration. If it is determined that a taxpayer is able to pay the $150 fee, but that to pay that fee would create economic hardship for the taxpayer, then the fee would not be assessed.

You can read the proposed regulation. The IRS is soliciting comments on the proposed regulation and to that end will hold a public hearing on February 13, 2003, at 10 a.m. at the IRS Building, Room 4718, 1111 Constitution Avenue, N.W., Washington D.C. Written comments are due by February 4, 2003. If you wish to comment online, you may do so at www.irs.gov/regs. Written comments should be mailed to:

Internal Revenue Service
CC:ITA:RU (REG-103888-02), Room 5226
P.O. Box 7604, Ben Franklin Station
Washington, D.C. 20044

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