NAEA Letter to House Ways and Means Regarding the OIC Provision in SAFETEA

May 19, 2005

Chairman William Thomas
Ranking Member Charles Rangel
House Ways and Means Committee
1102 Longworth House Office Building
Washington, District of Columbia 20515

Dear Congressmen Thomas and Rangel,

As president of the National Association of Enrolled Agents (NAEA), I am writing to share with you our serious concern regarding a tax revenue offset proposal in the Senate’s Substitute Amendment 605 to the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005 (SAFETEA) and to ask you to remove this taxpayer-hostile provision during conference committee negotiations.

Please allow me to start with a brief primer on enrolled agents (EAs). EAs are federally-authorized tax practitioners who have technical expertise in the field of taxation and are licensed by the Treasury Department to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. The principal concern of NAEA and its members is honest, intelligent, and ethical representation of the financial position of taxpayers before government agencies. Our members belong to a strong network of experienced, well-trained tax professionals who effectively represent their clients while working to ensure the tax code is reasonably and fairly enforced.

Moving to the point of the letter, one of the SAFETEA revenue offset proposals would require a significant change to IRS’ offer-in-compromise (OIC) program. More specifically, the proposal would require a taxpayer to remit either a 20% down payment with any lump sum offer or to make regular payments of proposed OIC installment payments. Should IRS reject any offer, the agency would retain any monies that a taxpayer submits with his/her offer. While the proposal would repeal the $150 OIC user fee, reduce IRS’ time to accept an offer from 24 to 12 months (starting in 2010), and create a task force to review the entire offer program, these benefits—such as they are—are far outweighed by the so-called ‘good faith’ provisions of the proposal.

While enrolled agents have many concerns with the OIC program in general, I will limit my few detailed comments to the proposal at hand. The entire NAEA board of directors and I discussed this proposal at our board meeting earlier this month and we unanimously arrived at the same conclusion—the proposal is a very bad idea and very bad tax policy.

  1. While increasing offer quality is an admirable goal, EAs are concerned that this approach is unduly burdensome to taxpayers. While the steep entry cost would probably prevent fraudulent offers, it will certainly prevent earnest taxpayers from making their offers, too. We believe that at the end of the day, taxpayers have a right to have their tax debt compromised.
  2. 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).
  3. A further concern is that some taxpayers plan to borrow to meet their tax obligations (often from family) and such taxpayers would see this plan as a great disincentive to make an offer. After all, does it make sense 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?

What is further discouraging is that we have long expressed our shared interest in improving offers. We believe, however, that using the OIC program as a revenue raiser is among the least taxpayer friendly ways to get there and will, in fact, adversely affect an already onerous process for compromising tax liabilities. And personally, I cannot understand this provision, which I believe will reduce significantly the number of offers submitted to IRS, will generate the 10-year dollars that the Senate bill claims it will.

Please understand that there is no group of people more interested in taxpayers paying their fair shares. As a result, members do not like the idea of people abusing the OIC program by using it as a ‘get out of taxes free’ card. At the same time, we understand that life is sometimes very messy and that people who make mistakes must to have a way to get themselves back on track.

Unfortunately, the transportation bill that the Senate passed on Thursday includes this taxpayer-hostile OIC provision. On behalf of 40,000 EAs nationwide, I ask the two of you to work to remove the OIC pay-for in conference. NAEA stands ready to assist you in coming up with more pro-taxpayer solutions to the OIC program.

Sincerely,

Francis X. Degen, EA, USTCP
President