TAP 03-010

Offer in Compromise Fee

Statement of Issue:

The $150 fee for the Offer in Compromise (Form 656) is burdensome on those whose income slightly exceeds the poverty levels or whose present financial circumstances prohibit even this modest sum. There is currently no mechanism for waiver of this fee beyond the one waiver for poverty levels.

Proposal:

Provide a mechanism to allow a waiver of the $150 filing fee for the Offer in Compromise beyond the initial waiver for poverty-level taxpayers. Examples of allowing the waivers might be: when the offer is above a certain percent of the tax owed, first time exemption for offers, or circumstantial waivers -- health related, unemployment, abusive domestic situations necessitating hiding.

Response Notes:

The IRS first gave general background on why the fee was implemented. Response to concern about no mechanism for waiver of fee beyond the waiver for poverty levels was explanation of why IRS choose the Department of Health and Human Services poverty level figure and noted that taxpayers seeking consideration of an offer solely under the basis of doubt as to liability do not pay the fee. IRS' response to TAP concern that the fee is a disincentive to some taxpayers for re-entering the taxpaying system is that poverty waiver excludes most taxpayers who would most likely be disadvantaged. Furthermore, if the offer is accepted to promote effective tax administration or accepted based on doubt as to collectibility with special circumstances, the fee will either be applied to the amount of the offer or refunded. As to the concern that another fee of $150 is required for each offer submitted, IRS responded that this is required under Treasury Regulation 300.0 and the general rule is that the IRS needs as many Form 656s as there are entities seeking to compromise. The IRS believes that the Offer in Compromise application fee balances, to the greatest extent possible, the interests of the government and the vast majority of taxpayers who submit an offer for consideration.