After dealing with the IRS for any period of time a practitioner can get the feeling that the IRS and the collections unit are really out for blood and they are not considering what is in the best interest of the government or the taxpayer. Then you hear of stricter requirements for the offer in compromise program and the commissioner reducing the amount of offer examiners to theoretically reduce the amount of offers in compromise that are able to be reviewed and thus accepted. I think it is very interesting to try to square the reality that goes on from day to day dealings with the IRS to what the objectives set out in the Internal Revenue Manual regarding the offer in compromise program are.
The Internal Revenue Manual (5.8.1.1.4) as amended in 2000 lists four objectives of the offer in compromise program. Those objectives are (1) to effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the government; (2) achieve a resolution that is in the best interest of both the individual taxpayer and the government; (3) provide the taxpayer a fresh start toward future voluntary compliance with all filing requirements; and (4) secure collection of revenue that may not be collected through other means.
We have discussed point one at depth on this blog previously about determining what is reasonably collectable for a taxpayer, and we will continue to discuss this issue. Mainly because this is the point most at issue when it comes to negotiation with the offer examiners – “how much can the taxpayer reasonably pay toward their tax liability?” It seems to me that this is the sole issue most offer examiners consider, and they disregard the other issues of best interest of the taxpayer, giving the taxpayer a fresh start, etc. There are a lot of issues that make this subject one that cannot be defined or completed in one blog post, but will require an entire series on determining how to show the IRS that your reasonable collection potential is very low in order to have your offer in compromise request accepted.
Based on conversations that I have with prospective clients and clients alike that have been trying to deal with the IRS on thier own for a period of time, it is clear to me that the objective of giving the taxpayers a fresh start is low on the IRS-Collections Unit totem pole. The collections unit seems to be focused on, well, collecting. Even the offer in compromise unit is more focused on collecting than any of the other objectives that are prescribed in the Internal Revenue Manual.
I guess that is why people need attorneys to help them work with the IRS and balance the remaining objectives in their favor to assist them in having an offer in compromise accepted.