The Internal Revenue Services (IRS) is recognized as the most feared and relentless collection agency in the United States. With its ability to seize personal assets, garnish wages, and freeze funds, the IRS is renowned for going to great lengths to collect every penny owed, and very few people are willing to defy its requests openly.
But, in 1992, a startling change took place. Abandoning its strong arm tactics for dealing with delinquent taxpayers, the agency reintroduced a program called “Offer in Compromise”. Offer in Compromise allows taxpayers who meet certain criteria to make a “settlement offer” through which they pay a portion of their tax debt in exchange for a zero balance. The system is designed to give a fresh start to people, and the government wants it to work.
Everybody who has a tax problem needs to take a hard look at it, especially the non-filer… the person who wakes up in night sweats.
Even though the Offer in Compromise program has been part of the Tax Code since the early part of the century, the process was highly inefficient and not very well publicized. Then in 1992, the program was significantly revamped and the IRS began altering its operating procedures in order to encourage its use. District managers were given the authority necessary to accept, reject, or withdraw compromise offers and the process itself was changed to take into consideration the needs of the debtor. The response to these changes was astonishing. Whereas offers in compromise had been used to settle approximately 2,000 cases in 1991, the program was need used to settle 18,020 cases in 1993.
The program calls for delinquent taxpayers to offer the IRS a settlement payment based not on what they owe but on what they can pay. Payments are computed by tallying up current assets and projected earnings over the next five years. The IRS then verifies the financial information and decides whether to accept or reject the offer. This decision hinges primarily on the debtor’s “collection potential” – whether or not the agency believes it could get more than is being offered simply by seizing the individual’s assets, which it could easily do. If an offer is accepted, the taxpayer makes one lump-sum payment and the rest of the debt is written off.
Many people have speculated about the IRS sudden decision to promote negotiations with debtors. The IRS is overburdened. There have never been so many delinquent taxpayers. They are overwhelmed, so they are eager to deal. In fact, in 1993 more than 10 million citizens had dropped out of the tax system while still owing more than $ 111 billion in taxes, fines, and interest. The government is more interested in getting money in the bank today instead of money in the bank in the future. It’s a sure thing.
The program also serves to bring back into the system people who have stopped filing as a result of their fear of penalties. Tax S delinquents are not necessarily deadbeats or cheats. Experts say that divorced couples, failed business owners, recovering alcoholics, and other people who have experienced unforeseeable financial upheavals often neglect to file one year.
For all its positive, the program does have its downside. For example, in order to qualify, the taxpayer does have to be at rock bottom. By the time people get to the point of applying for this program, they are really down and out, financially speaking. In addition, through the program, the IRS collects much less than that which is owed. In 1993, the IRS collected only 16 cents for every dollar owed.
Overall, though, the IRS program of negotiation and compromise is bringing in revenue that might otherwise never be collected. In addition, it is strengthening the overall image of the IRS, at least in the short term. In the long term, though, the IRS might prepare for further negotiations, such as with the tax payers not covered by the program those who have been paying their taxes all along.