tigta and offer in compromise audit

So what happens when you choose to submit an OIC to the IRS? The short answer is that it’s not always an easy process. To that end, recently the Treasury Inspector General for Tax Administration (TIGTA) conducted an audit to evaluate how efficiently the IRS is handling the OIC process. The audit hoped to determine whether or not OICs are being processed appropriately and in a timely manner. According to the IRS’s own policies, the OIC program can only be successful if:

  • Taxpayers make adequate compromise proposals which are consistent with what they can actually pay; and
  • The IRS makes quick and reasonable decisions.

What the TIGTA Audit Discovered

With that background in mind, here is what the TIGTA audit found. The IRS has in fact made some positive changes aimed at improving the entire OIC process both for the agency and for taxpayers, including:

  • Updates to the application forms
  • The creation of an online prequalifier tool
  • Creating a group of “offer” specialists to work payroll service provider cases
  • Encouraged more taxpayers to consider whether offers would benefit them

On the other hand, it wasn’t all good news. Some of the offer employees failed to complete the initial process in a timely manner in all cases. Additionally, they did not always contact taxpayers by the stated deadline, nor did they send an update letter when those stated deadlines were not met. In addition, 11 percent of the cases that were rejected did not include any documentation indicating that IRS employees discussed other possible resolutions with the taxpayer.

What Changes Still Need to Be Done

Therefore, while the audit found that the IRS has in fact made and implemented some important changes to the offer in compromise process, there is still more work to be done to streamline the OIC program. These are the additional recommendations from TIGTA:

  • Remind employees they are required to complete the processing determinations within 16 days and to contact taxpayers within 120 days.
  • Ensure that employees understand the requirements for sending interim letters when they miss the initial 120-day contact deadline.
  • Update the review guidance to specifically include verification that alternative resolutions were discussed with taxpayers when an offer is not accepted.
  • Management should emphasize the need to discuss alternate resolutions in refresher trainings and operational reviews.

IRS Agrees With Audit

It should be noted that the IRS agreed with all the recommendations included in the TIGTA audit and also stated that it would issue a memorandum to remind both managers and employees of these important policies regarding the OIC process. The IRS also agreed to conduct alternative resolution refresher training and to either revise or add verification language to the review process to help ensure that employees discuss alternative resolutions with taxpayers when applicable.