18. Prohibit seizure of residences in small deficiency cases

Present Law

Subject to certain procedural rules and limitations, the Secretary may seize the property of the taxpayer who neglects or refuses to pay any tax within 10 days after notice and demand. The IRS may not levy on the personal residence of the taxpayer unless the District Director (or the assistant District Director) personally approves in writing or in cases of jeopardy.

Description of Proposal

The proposal would prohibit the IRS from seizing real property that is used as a residence (by the taxpayer or another person) to satisfy an unpaid liability of $5,000 or less, including penalties and interest.

Effective Date

The proposal would be effective on the date of enactment.

K. Offers-in-Compromise

1. Rights of taxpayers entering into offers-in-compromise

Present Law

Section 7122 of the Code permits the IRS to compromise a taxpayer's tax liability. An offer-in-compromise is a proposal by the taxpayer to settle unpaid tax accounts for less than the full amount of the assessed balance due. An offer-in-compromise may be submitted for all types of taxes, as well as interest and penalties, arising under the Internal Revenue Code.

There are two bases on which an offer can be made: doubt as to liability for the amount owed and doubt as to ability to pay the amount owed.

A compromise agreement based on doubt as to ability to pay requires the taxpayer to file returns and pay taxes for five years from the date the IRS accepts the offer. Failure to do so permits the IRS to begin immediate collection actions for the original amount of the liability.

Description of Proposal

The proposal would require the IRS to develop and publish schedules of national and local allowances that will provide taxpayers entering into an offer-in-compromise with adequate means to provide for basic living expenses. The IRS would also be required to consider the facts and circumstances of a particular taxpayer's case in determining whether the national and local schedules are adequate for that particular taxpayer. If the facts indicate that use of scheduled allowances would be inadequate under the circumstances, the taxpayer would not be limited by the national or local allowances. The proposal also would allow a compliant spouse to apply to reinstate an agreement that would otherwise be revoked due to the nonfiling or nonpayment of the other spouse, providing all payments required under the compromise agreement are current. Finally, the proposal would require the IRS to publish guidance on the rights and obligations of taxpayers and the IRS relating to offers in compromise.

Effective Date

The proposal would be effective on the date of enactment.

2. Prohibit IRS rejection of low income taxpayer's offer-in-compromise based on amount of offer

Present Law

The Internal Revenue Manual provides guidelines for revenue officers to determine whether an offer-in-compromise is adequate. An offer is adequate if it reasonably reflects collection potential. Although the revenue officer is instructed to consider the taxpayer's assets and future and present income, the IRM advises that rejection of an offer solely based on narrow asset and income evaluations should be avoided.

Description of Proposal

The proposal would prohibit the IRS from rejecting an offer-in-compromise from a low income taxpayer solely on the basis of the amount of the offer.

Effective Date

The proposal would be effective for offers-in-compromise submitted after the date of enactment.

3. Prohibit the IRS from rejecting an offer-in-compromise solely based on a dispute as to liability because the taxpayer's file cannot be located by the IRS

Present Law

Section 7122 of the Code permits the IRS to compromise a taxpayer's tax liability. An offer-in-compromise is a proposal to settle unpaid tax accounts for less than the full amount of the assessed balance due.

There are two bases on which an offer can be made by the taxpayer: doubt as to liability for the amount owed and doubt as to ability to pay the amount owed.

Description of Proposal

The proposal would provide that, in the case of an offer-in-compromise submitted solely on the basis of doubt as to liability, the IRS may not reject the offer merely because the IRS cannot locate the taxpayer's file.

Effective Date

The provision would be effective for offers in compromise submitted after the date of enactment.

4. Prohibit the IRS from requiring a financial statement for offer-in-compromise based solely on doubt as to liability

Present Law

The instructions to Form 656 ("Offer in Compromise") note that financial information is only required to be supplied when submitting an offer based on doubt as to collectibility. Some have observed that the IRS may not be following this instruction.

Description of Proposal

The proposal would prohibit the IRS from requesting a financial statement if the taxpayer makes an offer-in-compromise based solely on doubt as to liability.

Effective Date

The proposal would be effective on the date of enactment.

5. Suspend collection by levy while offer-in-compromise is pending

Present Law

Pursuant to the Internal Revenue Manual, collection normally is withheld during the period an offer-in-compromise is pending, unless it is determined that the offer is a delaying tactic and collection is in jeopardy.

Description of Proposal

The proposal would prohibit the IRS from collecting a tax liability by levy (1) during any period that a taxpayer's offer-in-compromise for that liability is being processed, (2) during the 30 days following rejection of an offer, and (3) during any period in which an appeal of the rejection of an offer is being considered. Return of an offer-of-compromise as unprocessable would be considered a rejection for this purpose. Taxpayers whose offers are either rejected or returned as unprocessable and who made good faith revisions of their offers and resubmitted them within 30 days of the rejection or return would be eligible for a continuous period of relief from collection by levy. This prohibition on collection by levy would not apply if the IRS determines that collection is in jeopardy or that the offer was submitted solely to delay collection. The proposal would provide that the statute of limitations on collection would be tolled for the period during which collection by levy is barred.

Effective Date

The proposal would be effective with respect to taxes assessed on or after 60 days after the date of enactment.

6. Rejected offers-in-compromise and requests for installment agreements to be reviewed

Present Law

After an offer-in-compromise is rejected, the taxpayer has the opportunity to appeal the rejection in IRS Appeals.

Description of Proposal

The proposal would require that the IRS must implement procedures for it to review all proposed IRS rejections of taxpayer offers-in-compromise and requests for installment agreements prior to the rejection being communicated to the taxpayer.

Effective Date

The proposal would be effective for offers and requests made after the date of enactment.

7. Liberal acceptance policy for offers-in-compromise

Present Law

No provision.

Description of Proposal

The proposal would provide that the IRS should implement liberal acceptance procedures for offers-in-compromise to provide an incentive for taxpayers to continue to file tax returns and continue to pay their taxes.

Effective Date

The proposal would be effective on the date of enactment