Apr 26, 2010

2010 Tax Law Changes will provide relief for more with tax debt burdens

The Taxpayer Assistance Act of 2010, as proposed by the House Ways and Means Committee, has a critical amendment to section 7122 of the Internal Revenue Code.

What is section 7122 reference?
The Offer in Compromise (referred to by most as "Offer" or "OIC") for those with unpaid tax debts.

Specifically, Section 202 of the Act (not yet passed into law) removes the section 7122(c) "down payment" requirement of 20% of the amount of the Offer to the IRS to settle their tax liability. This would repeal the 2005 TIPRA law that required the 20% non-refundable down payment that was effective for all Offers submitted on or after July 16, 2006.

What was the the 2005 TIPRA (enacted in 2006) law's effect on the Offer in Compromise program?
The statistics speak for themselves. In 2005, there were almost 5.9 million new IRS inquiries into back taxes owed. In 2005, there were also approximately 74,000 OIC filed (about 12 filed an OIC for every 1,000 who owed and were being pursued by the IRS) with about 19,000 being accepted (about 1 in 4 allowed based on what was submitted).

In comparison, 2008 OIC statistics show the effects of the 20% down payment requirement. In 2008, there were 7.1 million new tax debtors being pursued by the IRS with only approximately 44,000 OIC submitted (that is a decrease to 6 out of every 1,000) with the same amount (25%) being accepted. Despite economic slowdowns and more qualifying in 2009, there was not a measurable increase in OIC submitted (about 7 in 1,000 who owed submitted but only 21% were accepted).

In fact, the IRS Taxpayer Advocate cites the 20% down payment requirement as the major obstacle for tax debt relief. The TAO states that this provision is actually a deterrent from tax compliance because it does not encourage those who are "over their head" to stay in the tax system. Also, the TAO argues the economics of the OIC: the IRS would get more money from the OIC v. the little the Treasury would collect if they started on a payment plan (approximately 39% of taxpayers incur additional tax liabilities that go unpaid).

The bottom line: when the 20% down payment requirement is repealed, more taxpayers will try the Offer in Compromise because there will be no significant barriers.

0 responses:

  © Blogger templates The Professional Template by Ourblogtemplates.com 2008

Back to TOP