Committee Reports on P.L. 105-206

Internal Revenue Service

Restructuring and Reform Act of 1998

 

Conference Report 105-599 To Accompany H.R. 2676 – 105thk Congress, 2d Session

 

Present Law (page 287)

 

      The Code permits the IRS to compromise a taxpayer's tax

liability. An offer-in-compromise is an offer 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. 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.

 

      Pursuant to the IRM , 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.

 

House Bill

 

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

The House bill requires 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.

 

      Suspend collection by levy while offer-in-compromise is

pending.--No provision.

 

      Procedures for reviews of rejections of offers-in-

compromise and installment agreements.--No provision.

 

      Publication of taxpayer's rights with respect to offers-

in-compromise.--The House bill requires the IRS to publish

guidance on the rights and obligations of taxpayers and the IRS

relating to offers in compromise, including a compliant

spouse's right 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.

 

      Liberal acceptance policy.--No provision.

 

      Effective date.--Date of enactment.

 

Senate Amendment (Page 288)

 

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

Same as the House bill, except as follows. Under the Senate

amendment, the IRS also is 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 is not limited by the national or

local allowances.

 

      The Senate amendment prohibits the IRS from rejecting an

offer-in-compromise from a low-income taxpayer solely on the

basis of the amount of the offer. The Senate amendment provides

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.

The Senate amendment prohibits the IRS from requesting a

financial statement if the taxpayer makes an offer-in-

compromise based solely on doubt as to liability.

 

      Suspend collection by levy while offer-in-compromise is

pending.--The Senate amendment prohibits 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. Taxpayers whose

offers are rejected 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 Senate amendment provides that the statute of

limitations on collection would be tolled for the period during

which collection by levy is barred.

 

      Procedures for reviews of rejections of offers-in-

compromise and installment agreements.--The Senate amendment

requires that the IRS implement procedures 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. The Senate amendment

requires the IRS to allow the taxpayer to appeal any rejection

of such offer or agreement to the IRS Office of Appeals. The

IRS must notify taxpayers of their right to have an appeals

officer review a rejected offer-in-compromise on the

application form for an offer-in-compromise.

 

      Publication of taxpayer's rights with respect to offers-

in-compromise.--Same as the House bill.

 

      Liberal acceptance policy.--The Senate amendment provides

that the IRS will adopt a liberal acceptance policy for offers-

in-compromise to provide an incentive for taxpayers to continue

to file tax returns and continue to pay their taxes.

 

      Effective date.--Generally effective for offers-in-

compromise submitted after the date of enactment. The provision

suspending levy is effective with respect to offers-in-

compromise pending on or made after December 31, 1999 .

 

Conference Agreement (Page 289)

 

      The conference agreement follows the Senate amendment,

with the following additions. First, the provision suspending

collection by levy while an offer-in-compromise is pending is

also expanded to apply while an installment agreement is

pending.

 

      Second, the provision authorizes the Secretary to

prescribe guidelines for the IRS to determine whether an offer-

in-compromise is adequate and should be accepted to resolve a

dispute. Accordingly, the conferees expect that the present

regulations will be expanded so as to permit the IRS , in

certain circumstances, to consider additional factors (i.e.,

factors other than doubt as to liability or collectibility) in

determining whether to compromise the income tax liabilities of

individual taxpayers. For example, the conferees anticipate

that the IRS will take into account factors such as equity,

hardship, and public policy where a compromise of an individual

taxpayer's income tax liability would promote effective tax

administration. The conferees anticipate that, among other

situations, the IRS may utilize this new authority to resolve

longstanding cases by forgoing penalties and interest which

have accumulated as a result of delay in determining the

taxpayer's liability. The conferees believe that the ability to

compromise tax liability and to make payments of tax liability

by installment enhances taxpayer compliance. In addition, the

conferees believe that the IRS should be flexible in finding

ways to work with taxpayers who are sincerely trying to meet

their obligations and remain in the tax system. Accordingly,

the conferees believe that the IRS should make it easier for

taxpayers to enter into offer-in-compromise agreements, and

should do more to educate the taxpaying public about the

availability of such agreements.

 

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SEC . 3462. of the Internal Revenue Service Restructuring and Reform Act of 1998

 

(a) STANDARDS FOR EVALUATION OF OFFERS-IN-COMPROMISE- Section 7122 (relating to offers-in-compromise) is amended by adding at the end the following new subsection:

`(c) STANDARDS FOR EVALUATION OF OFFERS-

`(1) IN GENERAL- The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute.

`(2) ALLOWANCES FOR BASIC LIVING EXPENSES-

`(A) IN GENERAL- In prescribing guidelines under paragraph (1), the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.

`(B) USE OF SCHEDULES- The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.

`(3) SPECIAL RULES RELATING TO TREATMENT OF OFFERS- The guidelines under paragraph (1) shall provide that--

`(A) an officer or employee of the Internal Revenue Service shall not reject an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer, and

`(B) in the case of an offer-in-compromise which relates only to issues of liability of the taxpayer--

`(i) such offer shall not be rejected solely because the Secretary is unable to locate the taxpayer's return or return information for verification of such liability, and

`(ii) the taxpayer shall not be required to provide a financial statement.'.

(b) LEVY PROHIBITED WHILE OFFER-IN-COMPROMISE PENDING OR INSTALLMENT AGREEMENT PENDING OR IN EFFECT- Section 6331 (relating to levy and distraint), as amended by sections 3433 and 3444, is amended by redesignating subsection (k) as subsection (l) and by inserting after subsection (j) the following new subsection:

`(k) NO LEVY WHILE CERTAIN OFFERS PENDING OR INSTALLMENT AGREEMENT PENDING OR IN EFFECT-

`(1) OFFER-IN-COMPROMISE PENDING- No levy may be made under subsection (a) on the property or rights to property of any person with respect to any unpaid tax--

`(A) during the period that an offer-in-compromise by such person under section 7122 of such unpaid tax is pending with the Secretary, and

`(B) if such offer is rejected by the Secretary, during the 30 days thereafter (and, if an appeal of such rejection is filed within such 30 days, during the period that such appeal is pending).

For purposes of subparagraph (A), an offer is pending beginning on the date the Secretary accepts such offer for processing.

`(2) INSTALLMENT AGREEMENTS- No levy may be made under subsection (a) on the property or rights to property of any person with respect to any unpaid tax--

`(A) during the period that an offer by such person for an installment agreement under section 6159 for payment of such unpaid tax is pending with the Secretary,

`(B) if such offer is rejected by the Secretary, during the 30 days thereafter (and, if an appeal of such rejection is filed within such 30 days, during the period that such appeal is pending),

`(C) during the period that such an installment agreement for payment of such unpaid tax is in effect, and

`(D) if such agreement is terminated by the Secretary, during the 30 days thereafter (and, if an appeal of such termination is filed within such 30 days, during the period that such appeal is pending).

`(3) CERTAIN RULES TO APPLY- Rules similar to the rules of paragraphs (3), (4), and (5) of subsection (i) shall apply for purposes of this subsection.'.

(c) REVIEW OF REJECTIONS OF OFFERS-IN-COMPROMISE AND INSTALLMENT AGREEMENTS-

(1) IN GENERAL- Section 7122 (relating to compromises), as amended by subsection (a), is amended by adding at the end the following new subsection:

`(d) ADMINISTRATIVE REVIEW- The Secretary shall establish procedures--

`(1) for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer under this section or section 6159 before such rejection is communicated to the taxpayer, and

`(2) which allow a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals.'.

(2) CONFORMING AMENDMENT- Section 6159 (relating to installment agreements) is amended by adding at the end the following new subsection:

`(d) CROSS REFERENCE-

`For rights to administrative review and appeal, see section 7122(d).'.

(d) PREPARATION OF STATEMENT RELATING TO OFFERS-IN-COMPROMISE- The Secretary of the Treasury shall prepare a statement which sets forth in simple, nontechnical terms the rights of a taxpayer and the obligations of the Internal Revenue Service relating to offers-in-compromise. Such statement shall--

(1) advise taxpayers who have entered into a compromise of the advantages of promptly notifying the Internal Revenue Service of any change of address or marital status,

(2) provide notice to taxpayers that in the case of a compromise terminated due to the actions of 1 spouse or former spouse, the Internal Revenue Service will, upon application, reinstate such compromise with the spouse or former spouse who remains in compliance with such compromise, and

(3) provide notice to the taxpayer that the taxpayer may appeal the rejection of an offer-in-compromise to the Internal Revenue Service Office of Appeals.

(e) EFFECTIVE DATES-

(1) IN GENERAL- The amendments made by this section shall apply to proposed offers-in-compromise and installment agreements submitted after the date of the enactment of this Act.

(2) SUSPENSION OF COLLECTION BY LEVY- The amendment made by subsection (b) shall apply to offers-in-compromise pending on or made after December 31, 1999 .