GAO Reports  
GAO-02-311 March 15, 2002

Tax Administration: IRS Should Evaluate
the Changes to Its Offer in Compromise Program

A growing backlog of cases and longer processing times have prompted concern about the management of the Internal Revenue Service's (IRS) Offer in Compromise (OIC) Program. OIC inventory and processing time have grown despite significant increases in program staff. Program changes increased the demand for offers, the number of processing steps, and the number of staff hours needed to process the case. Yet, the demand for offers exceeded staff's capacity to process them. The extent to which IRS' current initiatives would reduce the OIC Program inventory and processing time is uncertain. The current initiatives are intended to separate the processing of less complex and more complex offers, with lower-grade staff using standardized procedures to process less complex offers and higher-grade staff specializing in more complex offers. IRS projects that the initiatives will stabilize the inventory and keep up with the flow of new offers by the end of fiscal year 2002. IRS met the requirements of the IRS Restructuring and Reform Act of 1998 by independently reviewing all proposed offer rejections, considering the facts and circumstances of each taxpayer when determining allowances for monthly living expenses, and not rejecting offers from low-income taxpayers solely on the basis of the amount offered. IRS lacks data on the effect on taxpayers of its 1998 decision that the agency lacked the authority to enter into partial payment installment agreements. IRS officials said the policy change created a situation in which taxpayers who were willing to pay some of their tax liability might not qualify for either an installment agreement or an offer. According to these officials, the only other option was to put such taxpayers' accounts into inactive status.

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