In her annual Report to Congress, Nina Olson , the Taxpayer Advocate, pointed out that the IRS is under-utilizing the Effective Tax Administration (ETA) Offer in Compromise (OIC) program. The IRS accepted an average of only 27 ETA OICs per year.
The ETA program is designed as an alternative to the Doubt as to Collectibility (DATC) and Doubt as to Liability (DATL) Offer programs which require either an inability to pay the full tax obligation, including penalties and interest, (DATC) or a claim that the amount of tax, penalties, and interest assessed is wrong (DATL).
The ETA Offer program allows the IRS to accept an amount that is less than the reasonable collection potential, on a validly owed tax amount, in situations where the facts indicate accepting the amount would be fair and equitable. Ms. Olson’s Report stated that “the ETA OIC allows the IRS to consider the circumstances that led to a delinquency and weigh the long term benefits of allowing an otherwise viable business to survive by paying less than the amount legally owed against the government’s interest in quickly collecting as much as possible through liquidation of the business assets.”
Examples of reasons for accepting an ETA OIC include:
- The liability was directly caused by a processing error on the part of the IRS.
- The liability was the result of erroneous advice or instructions from the IRS.
- Actions or inactions of the IRS unreasonably delayed resolution of the taxpayer’s case and interest or penalty abatement is not available.
- Criminal or fraudulent actions of a third party were directly responsible for the tax liability.
- Rejecting an OIC and pursuing collection would have a significantly negative impact on the community.
- The taxpayer was incapacitated and unable to comply with the tax laws.
- Other cases where a reasonable third party would believe that acceptance of an OIC would be fair, equitable, and promote effective tax administration.
We encourage everyone to consider an ETA OIC in the appropriate circumstances.