Senate Proposal Synopsis: 

The current provision in the Senate version of HR 4297 requires a taxpayer to include a “good faith” down payment of 20 percent of any lump sum offer-in-compromise.  For periodic payment offers, the taxpayer is required to comply with his/her own proposed payment schedule.  The proposal also repeals the $150 user fee.  Additionally, the provision provides that an offer will be deemed accepted if IRS does not reject it within 24 months (12 months beginning 2010).  The proposal is estimated to raise $683 million over five years.

Arguments Against:

Increasing offer quality is an admirable goal. At the same time, we must stress that taxpayers have the right to compromise their tax debts. 

• NAEA believes the “good faith” approach is aggressively unfriendly to taxpayers.  While the steep entry cost would certainly deter frivolous offers, it would also prevent many earnest taxpayers from making their offers as well.
  
• With IRS permitted to wait 24 months to accept an offer, at least until 2010, one of the common concerns is the possibility that IRS may use this new rule to further slow its processing of offers (particularly in the case of taxpayers making monthly ‘good faith’ payments).
  
• Many taxpayers borrow (often from family or friends) to meet their tax obligations and such taxpayers would see this plan as a great disincentive to make an offer.  Intuitively, taxpayers would be disinclined to borrow in an effort to square up with IRS, only to risk that a rejected offer would put the taxpayer even more in debt, both to IRS and to the source of the borrowed ‘good faith’ payment.
  
• It is not clear how the provision, which NAEA believes will reduce significantly the number of offers submitted to IRS, would generate the 10-year dollars that the Senate bill claims it will.

NAEA Substitute Proposal:

• Require that any paid third party preparing an offer be regulated by a current Circular 230 practitioner – Attorney, CPA or Enrolled Agent.
  
• Create a $5,000 frivolous filing penalty for any paid preparer assisting in the preparation of the frivolous offer that on its face does not meet the minimum standards established by the IRS.
  
• Maintain the current user fee.
  
• Deem an offer accepted if not rejected by the IRS within 12 months.