IRS Aims to Raise Fees for Offers in Compromise and Installment Agreements

[kcjenkins]

The Internal Revenue Service has released proposed regulations that would increase the user fees for both offers in compromise and installment agreements for the first time since 2007.

The proposal comes after years of successive budget cuts for the embattled agency, but the IRS has nevertheless managed to hold down the fees for paying off outstanding tax debts. Back in 2011, then-commissioner Doug Shulman announced the IRS Fresh Start program, which aimed to help individual taxpayers and small businesses struggling with tax liens and other collection tactics (see IRS Overhauls Tax Lien System). The effort included easier access to installment agreements and a streamlined offer in compromise program.

Agencies such as the IRS are allowed to charge user fees, but the fees need to be fair and must be based on the costs to the government, the value of the service to the recipient, the public policy or interest served, and other relevant facts. The federal Office of Management and Budget encourages agencies to charge user fees for government-provided services that confer benefits on identifiable recipients over and above those benefits received by the general public. According to an OMG regulatory circular, an agency that seeks to impose a user fee for government-provided services must calculate the full cost of providing those services. In general, the amount of a user fee should recover the cost of providing the service, unless the OMB grants an exception.

The IRS currently charges $105 for entering into an installment agreement, except that the fee is $52 for a direct debit installment agreement, in which the taxpayer authorizes the IRS to request the monthly electronic transfer of funds from the taxpayer's bank account to the IRS. The fee is $43 if the taxpayer is a low-income taxpayer. The IRS currently charges $45 for restructuring or reinstating an installment agreement that is in default. The fees have not changed since 2007.

The IRS said it recently completed a routine review of the installment agreement program and determined that the full cost of an installment agreement is $282, except that the cost is only $122 for a direct debit installment agreement. The IRS also determined that the full cost of restructuring or reinstating an installment agreement is $85.

After discussions with the OMB, the IRS has proposed to raise the fee for entering into an installment agreement to $120, and to increase the proposed fee for restructuring or reinstating an installment agreement to $50. The fee for a direct debit installment agreement would remain $52, and low-income taxpayers would continue to pay $43 for any new installment agreement, including a direct debit installment agreement.

The proposed regulations would not increase the fee for direct debit installment agreements because these agreements have a significantly higher completion rate, the IRS pointed out. The proposed fee hikes aim to balance the need to recover costs with the goals of encouraging the use of installment agreements in general and direct debit installment agreements in particular.

The IRS currently charges $150 for processing an offer to compromise, except that no fee is charged if an offer is based solely on doubt as to liability, or made by a low-income taxpayer. The fee is generally applied to the unpaid taxes if the offer is accepted to promote effective tax administration or accepted based on doubt as to collectability. In the latter case, a determination must be made that collection of an amount greater than the amount offered would create economic hardship. The amount of the fee has not changed since 2003, the IRS noted. As required by the OMB Circular, the IRS recently completed a routine review of the offer to compromise program and determined that the full cost of an offer to compromise is $2,718.

After discussions with OMB, the IRS has proposed to raise the fee for processing an offer to compromise to $186. Low-income taxpayers and taxpayers making offers based solely on doubt as to liability would continue to pay no fee. As now, the fee is generally applied to the unpaid taxes if the offer is accepted to promote effective tax administration or accepted based on doubt as to collectability. In the latter case, a determination must be made that collection of an amount greater than the amount offered would create economic hardship. “The proposed fee balances the need to recover costs with the goal of encouraging offers in compromise,” said the IRS.

The new fee rate for both installment agreements and offers in compromise would take effect on Jan. 1, 2014.

[Guest Taxed]

I am sure more increases in IRS user fees to come.

I will not be surprised if the PTIN renewal fees are bumped to $100 per year.

[Catherine]

1. Sure; demand MORE money from people who already don't have it. That works. Not.

2. Taxed -- Shhh!!!!! Do NOT give them ideas!

[Guest Taxed]

1. Sure; demand MORE money from people who already don't have it. That works. Not.

2. Taxed -- Shhh!!!!! Do NOT give them ideas!

Don't worry IRS has smarter people than me who will figure this out in a hurry!

[kcjenkins]

News From the Swamp: IRS Expands Its Troubles

The inspector general for the Social Security Administration (SSA) recently published a report revealing that the IRS routinely neglects to penalize employers who file W-2s with mismatched names and Social Security numbers. In effect, this has "hindered" the SSA's attempts to prevent "unauthorized noncitizens" (illegal aliens) from using fake or stolen Social Security numbers to obtain tax refunds. "Furthermore," said the report, "a senior employment tax official at the IRS acknowledged that unauthorized noncitizens accounted for a high percentage of inaccurate wage reporting." This isn't surprising, given that the IRS has issued an astounding $14 billion in refundable tax credits to illegals.

In other IRS news, National Review's Eliana Johnson reports, "The second in command at the Internal Revenue Service, Beth Tucker, will retire at the end of September." As we noted in July, Tucker is one of the IRS employees who "commutes" to DC from her Texas home at obscene cost. Travel policy has since been changed. Baby steps.

Finally, Republicans on Capitol Hill are still working on the investigation into IRS targeting of Barack Obama's political opponents in the lead-up to the 2012 election. Lois "Plead the Fifth" Lerner, the IRS official at the center of the scandal, remains on vacation since her May non-testimony, though Republicans still hope to compel her testimony.

Exit question: Does anyone trust the IRS to implement ObamaCare?