At the start of the new year, the IRS announced steps to help struggling taxpayers buffeted by the deepening recession. But two of its most effective tools have become virtually "dead letter" programs because of agency roadblocks that too few taxpayers can navigate.
Tax practitioners across the country voiced long-simmering anger and frustration with the agency's handling of the so-called offer in compromise (OIC) and the partial-payment installment program even as these lawyers experience an increasing number of taxpayers seeking their help because of job losses or home mortgage problems. And their frustrations are backed by data from the national taxpayer advocate.
"It's absolutely the most abusive unit within the IRS in the way in which they treat taxpayers," said W. Calvin Bomar, a partner at Atlanta's Bomar & Phipps and a former attorney in the IRS' office of chief counsel, referring to centralized IRS units that review offers made by taxpayers to settle their tax liability for less than the amount owed. "Under no circumstance do they want to approve an offer in compromise. I'm talking about people who are destitute and entitled to relief under that program."
Bomar, who said he never gets excited or passionate ("I'm a tax lawyer"), clearly is angered by how the program, which he and others consider a major tool that helps both taxpayers and the government, is not working. ...
National Taxpayer Advocate Olson, an independent ombudswoman appointed by the secretary of Treasury, told a House oversight committee recently that she hears "regularly" from tax practitioners who have given up on the offer-in-compromise program because of administrative and legislative obstacles.
"Moreover, tax professionals tell me that, given the low possibility of the IRS accepting an offer, they are advising their clients to file for bankruptcy," she said. "When that happens, the IRS generally will collect less than through the offer in compromise."
Olson said offers are good deals for both the taxpayer — who removes the threat of enforced IRS collections hanging over his or her head for the next 10 years — and for the government, which gets as much revenue as possible and requires the taxpayer to remain in full compliance for five years.
Partial-payment installment agreements — a second collection alternative for struggling taxpayers — are also beneficial to both parties, she said, and are underutilized.