Commissioner, Small Business/Self Employed Division
Internal Revenue Service
1111 Constitution Ave. NW
Washington, DC 20224
Dear Commissioner Petronchak,
As president of the National Association of Enrolled Agents (NAEA), I write on behalf of 46,000 enrolled agents (EAs) nationwide. NAEA appreciates the opportunity to respond to the IRS request for comments about offers in compromise (OIC), allowable living expenses (ALEs), and installment agreements (IAs). Given that EAs specialize in representing taxpayers before IRS, we believe NAEA is well-positioned to offer an informed perspective about these topics.
Offers in Compromise
We have found widespread frustration among EAs about the current state of the OIC program. At the risk of being overly blunt, some believe that IRS is operating the program with the intent to reject as many offers as possible. To some degree, perhaps a more detailed public airing of offers statistics, particularly those after July 16, 2006, (when the TIPRA down payment rules took effect) would prevent people from drawing this conclusion. Also, given that some believe that results differ between Brookhaven and Memphis, it also may make sense to separate the statistics by campus.
Further, we remain concerned by the non-refundable partial payment required with every offer submission (twenty percent for lump-sum offers and regular monthly payments for periodic-payment offers). The National Taxpayer Advocate expressed a similar concern, and stated in a recent study that “most taxpayers who submitted good offers [prior to the TIPRA change] that the IRS accepted would have had difficulty submitting those offers if the partial payment rules had been in place.”1 Our assertion—that it would severely reduce the number of submissions—seems to have been realized. We wonder what the reduced volume of offers has done both to total OIC dollars collected, and to total projected receipts on accepted offers. (This is important in light of the $2 billion TIPRA expected the provision would raise within ten years). Members raised a number of examples in which the partial payment rules (i.e., the down payment will not be returned if the offer is rejected) are preventing taxpayers from making offers. While the individual details vary widely, in some cases taxpayers will no longer use gifts or payments from friends/family when the sole purpose of the funds is to settle an outstanding tax debt.
We are concerned by the 24-month timeframe the Service now is permitted to consider (and reject) offers. We trust those running the program are working aggressively to shorten turnaround times and that no decision comes close to requiring 24 months. Notwithstanding general timeliness of responses, the larger concern enrolled agents face is the skill level and training of the staff reviewing the offers. Our frustration could be in part due to the fact that the Internal Revenue Manual (IRM) has not been updated to reflect the new post-TIPRA OIC procedures and that the interim guidance is not well publicized. As a result of this IRM opacity, the practitioner is hard-pressed to understand the actual rules of the road.
Because of the partial payment requirement and the general perception of IRS antipathy toward the OIC program, many enrolled agents are reluctant to advise a client to submit offers they otherwise in the past would have advised him or her to submit. In lieu of submitting offers, we see clients either filing bankruptcy or remaining in currently not collectible status until the statute expires.
Allowable Living Expenses
We are pleased to see the announcement that an updated ALE framework will be launched on October 1, 2007. The change is long overdue; EAs have long been concerned that the allowable expenses are perpetually outdated. We note that the new framework differs in some ways significantly from the existing standards (for instance, the national standard expenses, which include food, housekeeping supplies, apparel, and personal care products, no longer include income ranges). As a result, we are reserving judgment on the changes.
With these new standards, we hope that the Service redoubles its efforts to provide collection staff with more encouragement to allow for deviations from the standards, when appropriate and in circumstances that optimize collection of unpaid tax. We suggest, however, that an even greater problem than revenue officer inflexibility is the length of time between ALE revisions. Perhaps IRS could consider a more frequent update schedule?
Otherwise, a few EAs wondered whether offers that are in process on October 1 will be evaluated under the old standards or under the new standards. Will the taxpayer be able to select one instead of the other?
We understand you are interested in specific examples in which IRS staff fails to make reasonable deviations from standard allowed expenses. As the new ALE framework is put into effect, we will let SB/SE staff know as appropriate should IRS staff fail to make what we consider to be reasonable deviations.
We offer a few suggestions for how to improve the administration of installment agreements (IAs). While mandating electronic fund transfer (EFT) may be a bridge too far, we do note that some states (e.g., California2 and Wisconsin3) have requirements in place. Perhaps another, less controversial way to move taxpayers towards direct debit would be to significantly lower the fee charged to those who avail themselves of this option while simultaneously increasing the fee for those who choose to mail payments. IRS could structure this in a revenue neutral fashion, so that the Service’s net processing costs are covered (though disproportionately by those without direct debit).
We also note that the Form 2159 (Payroll Deduction Agreement) does not carry the reduced $52 user fee that the EFT option on Form 9465 (Installment Agreement Request) carries. Instead, these taxpayers must pay the full $105 fee. Perhaps this disparate treatment could be remedied? Further, the Form 2159 option is one of IRS’ best kept secrets. If more taxpayers (and tax practitioners) were aware of this option, it could help improve the installment agreement default rate.
Some EAs believe that lowering the amount acceptable for monthly payments as well as extending the 60 months for a streamlined agreement would help persuade more taxpayers to enter into installment agreements. Also, with respect to partial pay installment agreements, we are wary about what appears to be routine requests to extend the collection statute (CSED). Routine extensions would appear to be inconsistent with the legislative intent of permitting partial pay installment agreements.
With respect to the IA program overall, we believe IRS should immediately provide taxpayers:
The documentation should state clearly what the agreement is and should include an amortization table. Taxpayers also should receive regular (perhaps quarterly or semiannually) statements charting their progress towards completing the IA. The payment coupons will help remind taxpayers of their obligation.
Untold numbers of enrolled agents work every day on behalf of taxpayers who are attempting to negotiate payment plans with IRS. As always, we appreciate the opportunity to comment on tax administration topics of mutual interest. Thank you for soliciting our observations and suggestions and please do not hesitate to contact NAEA Senior Director, Government Relations, Robert Kerr, at (202) 822-6232.
Diana Thompson, EA
1The National Taxpayer Advocate’s Report to Congress, July 2007. In October 2006, the NTA looked at 414 OICs that the IRS accepted before the implementation of TIPRA. She determined that in about 70 percent of the accepted offers, the 20 percent partial payment was not available from liquid assets.
2California Revenue and Taxation Code, Part 10.2, Chapter 4, Article I, §§19008, 19010-19011
3583 Wis. Admin. Reg. 25