Thursday, February 10, 2011
(Tulane) presents Modeling the Forgiveness of Tax Debts: Towards Effective Reform of Tax Law's Offer in Compromise Procedure
at Indiana-Bloomington today as part of its Tax Policy Colloquium Series
. Here is the abstract
The Offer-in-Compromise (“OIC”) procedure is a procedure by which the IRS deals with taxpayers who are experiencing difficulties in paying their tax debts. This paper examines the OIC procedure with an eye towards two tasks: First, it analyzes the procedure as a launching pad to thinking about broader issues of whether, how, and to what extent a taxing authority should forgive tax debts. Second, it proposes a framework for evaluating the likely effectiveness of any proposed reforms of the procedure. This paper presents five arguments that the OIC procedure needs to be a strong and viable one. These arguments are rooted in practicality, justice-based, rehabilitative, socio-economic, and jurisprudential considerations. Unfortunately, an analysis of its recent history shows that the procedure is, in fact, structured in a way that tends to undermine its effectiveness. The power to implement and effectuate the procedure is dispersed among four players with divergent interests: (1) Congress; (2) the IRS; (3) the taxpayer; and (4) financial backers of the taxpayer. Each of these players has conflicting and contradictory interests in how the forgiveness of tax debtors in general, and the OIC procedure in particular, should operate. And, over time, the actions and decisions of each of these players lead to conflicting and counterproductive behaviors and responses by other players, such that overall programmatic effectiveness is undermined. This paper argues that given this dynamic between stakeholders, reforms that minimize or eliminate such downward-spiraling interactions of divergent interests should be adopted. On the other hand, reforms that provoke or encourage such interactions should be dismissed. This paper gives examples of each type of reform.