OIC Program Performance Has Been Mixed, and IRS Has Not Researched the Reasons for Some Performance Trends

Based on our analysis of OIC data, program performance has been mixed  relative to five objectives—timeliness, quality, accessibility, compliance,  and cost. However, some  taxpayers wait more than 2 years to get an offer accepted, and cost per  offer has increased. IRS has numeric targets for timeliness and  quality. Timeliness Has Improved for Some Taxpayers but Remains Mixed, and IRS’s Timeliness Goals Are Set for Offers, Not Taxpayers

The OIC Program measures timeliness based on how long it takes to make  a decision about an offer and not how long it has taken taxpayers, some of  whom have repeat offers, to get their tax liabilities finally resolved. Furthermore, IRS has not analyzed the effect of the  number and growth of repeat offers on timeliness. For example, it might be less costly  for IRS to deal once with a taxpayer, even if it takes more time to work the  single case, rather than have to process repeat offers. IRS also met its field quality goal of 84  percent using CQMS for fiscal year 2005. In fiscal year 2005, IRS would have been able to reassign 110  FTEs in COICs and 7 FTEs in field offices. ETA Regulations Are Consistent with Statute, but Hardship ETA and DATC Offers Are Not Meaningfully Distinct and Non- Hardship ETA Offers Are Rare

IRS’s ETA regulations are consistent with the provisions of the  Restructuring Act, which were broadly written. The lack of distinction between  DATC and hardship ETA offers causes unnecessary program complexity  and confusion for taxpayers and tax practitioners. Because of the wording of the instructions, taxpayers applying for hardship  ETA also are faced with the paradoxical process of proving that they can  pay the tax liability and then explaining in writing why they cannot afford  to pay it. Conclusions

Because some delinquent taxpayers will always be unable to fully pay their  tax debts, IRS's OIC Program is necessary to ensure that taxpayers pay  what they can and have a “fresh start” toward complying with their future  obligations. The success of the program also depends on how well IRS management  understands the reasons for the program’s performance. One step in  understanding performance is measuring it. IRS’s tracking of the future  compliance of program participants is also incomplete because it does not  routinely measure compliance. Another step in understanding performance is setting goals. The numeric goals for  OIC timeliness still are not based on an analytical assessment of taxpayer  needs and other benefits, and the goals are set for each case rather than for  taxpayers. A third step in understanding performance is analysis that determines the  causes of performance. In addition, IRS has not analyzed factors that  affect trends in the OIC Program’s accessibility. Furthermore, IRS does not set goals from the perspective of taxpayers. Distinguishing between Multiple Offers Submitted by Taxpayers

Because many taxpayers submit more than one offer in an effort to  compromise tax liabilities, and because IRS does not track multiple offers  from the same taxpayer, we independently developed estimates of the average (1) number of offers taxpayers submitted on the same tax liability,  (2) time it took IRS to process all of these offers, and (3) calendar time  duration between the date the first in a series of offers was submitted and  the date the last in the series was closed.
Why GAO Did This Study

Taxpayers unable to fully pay their tax liabilities may apply for an offer in compromise (OIC), an agreement with IRS to pay what they can afford. IRS writes off the rest of the liability. In 2005, IRS accepted over 14,000 offers. Because of concerns about program performance and a new category of offers based on exceptional circumstances, GAO was asked to (1) describe the trends in program's performance and their causes and (2) determine whether IRS's regulations for exceptional circumstance offers are consistent with statute. GAO examined five program objectives: timeliness, quality, accessibility, compliance, and cost.

What GAO Found

OIC Program performance has been mixed. Timeliness improved for taxpayers making one offer to 5.8 months in 2005 but stayed constant, at an average of two years, for those making repeat offers. Quality goals have been met but IRS does not routinely track compliance and accessibility. Further, cost per offer has increased in that IRS has not decreased staffing since fiscal year 2003 in proportion to declines in offers. Improving the program depends on how well IRS management understands the reasons for the program's performance. One step in understanding performance is measuring it. However, IRS does not measure timeliness from the perspective of the taxpayer--for taxpayers with repeat offers IRS measures the time to decide each offer but not the overall time to resolve the taxpayer's liability. IRS lacks compliance and accessibility trend data useful for assessing performance. Another step in understanding performance is setting goals. IRS set numeric goals for timeliness and quality, but IRS's timeliness goals do not have a rationale and are not based on taxpayer needs or other benefits. A third step in understanding performance is analysis. While IRS has done some analyses that led to program changes, IRS has not analyzed the effect of repeat offers on timeliness to determine whether it would be less costly to deal once with a taxpayer rather than have to process repeat offers. IRS also has not analyzed whether the decrease in offers accepted since fiscal year 2003 reflects a decrease in program accessibility, or whether the efforts to improve the compliance of program participants have been successful. IRS's regulations for exceptional circumstance offers, intended for taxpayers who can fully pay, are consistent with statute. However, most exceptional circumstance offers are granted to taxpayers who cannot fully pay. These offers are not meaningfully distinct from the more common offers based on inability to fully pay. The lack of distinction causes unnecessary program complexity and confusion. Taxpayers are faced with the paradoxical process of proving that they can pay their tax liability and then explaining why they cannot.