An unsure thing: can't pay your federal tax bill? Don't count on the IRS offer-in-compromise program to help

Entrepreneur, July, 2003 by Joan Szabo

DO YOU HAVE A HUGE FEDERAL TAX bill you can't pay? If you were thinking of applying for the IRS offer-in-compromise (OIC) program to settle your debt, you may have to rethink your plans. The program, which lets taxpayers settle their tax bill for less than the full amount owed, needs to be overhauled, says the IRS Oversight Board. The criticism is due to the IRS not resolving such cases as quickly as taxpayers want, says PricewaterhouseCoopers tax partner Marty Janowiecki. "There's a backlog of cases, with insufficient IRS personnel to quickly settle them," he says.

Even so, the IRS says it's taking steps to improve the program, which was never intended to be a solution for all taxpayers who owe money on a tax account. "The IRS is striving to establish a balance between providing quality and timely assistance to taxpayers whose situations warrant submission of an OIC, while administering the other collection programs," says Cheryl Sherwood, director of payment compliance for the IRS.

The agency has created a more centralized approach to the OIC program, allowing it to:

* identify and transfer the more complex OIC cases to the field office earlier in the process;

* identify taxpayers who have the financial ability to "full pay" their federal tax bill as soon as possible; and

* identify and resolve inappropriate offers, such as those submitted solely to delay the collection process.

As a result of these and other steps, taxpayers should see increased timeliness and a less-intrusive investigation when seeking an OIC, says the IRS. The less-burdensome approach has been in place for almost a year, and timeliness on cases has improved. During the first quarter of fiscal 2003, 52 percent of cases were resolved within six months, up from 32 percent during the first quarter of 2002.

The agency is also trying to educate accountants about the different collection methods, such as full pay, installment agreements and OIC. "Tax professionals who have a clear understanding of how the OIC process works and when an offer in compromise is appropriate can better represent their clients," Sherwood says.

Despite these changes, the push for a major overhaul in the program may continue. Janowiecki suggests, for example, that the agency may need to boost the number of revenue officers assigned to the program.

If you're interested in the OIC program, discuss it with your accountant. For more information, get IRS Publication and a copy of IRS Form 656.

Great Falls. Virginia, writer JOAN SZABO has reported an tax issues for 16 years.