5-27-12 Forbes Blog: New IRS Offer In Compromise Policies

Over the years the IRS offer in compromise program has been the subject of a great deal of criticism by Congress, the National Taxpayer Advocate and taxpayer representatives. The new initiative represents the most dramatic liberalization of IRS settlement policies ever announced. It represents a welcome change from an agency which has always placed substantial roadblocks to those seeking to compromise their tax obligations.

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2012 National Taxpayer Advocate Delivers Annual Report to Congress

On January 11, 2012 National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the combination of the IRS’s expanding workload and declining resources as the most serious problem facing taxpayers. The result, the report says, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. The Advocate expressed her continuing concern that the IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers and recommended that Congress enact a comprehensive Taxpayer Bill of Rights.

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A tax practitioner is frequently confronted with the following question when giving a client a return with a balance due on it: “Should I file the return right now, or wait until I have the money to pay it?”

The answer is very simple. File it as soon as possible! If your client has any money at
all available for payment, it should be enclosed with the return. The reason for such
advice is that one of the largest penalty rates which the IRS is allowed to impose is for
late filing of a return. The penalty is five percent per month, up to a maximum, of 25%, of the tax due but unpaid by the due date of the return, which works out to be an annualized rate of 60%. Therefore, if your client fails to file the return on time there is an effective annual rate of interest in excess of 75% when you add interest and. late payment penalty. The late payment penalty after notice, on the other hand, is one percent per month, or an effective rate of 12% per year in addition to statutory interest. One1 drawback of filing a timely return without remittance is that the IRS will arrive at the taxpayer’s door to collect the liability much sooner than if he or she files a return late. However, the additional cost for penalties incurred to gain this time is prohibitive.

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Appealing to the IRS

1.10 While the process is not mandated by statute, the Service has, for over 60 years, provided taxpayers with an administrative alternative to litigating their tax disputes in court [Reg. § 601.106]. Now commonly referred to as Appeals, this administrative branch of the IRS generally has the final power and authority of the IRS to determine audit liabilities of taxpayers

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IRS Criminal Investigation

IRS Criminal Investigation (CI) is comprised of approximately 4,400 employees worldwide, approximately 2,600 of which are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.

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