[Federal Register: August 15, 2003 (Volume 68, Number 158)]
[Rules and Regulations]
[Page 48785-48787]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au03-6]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 300
[TD 9086]
RIN 1545-BA54
User Fees for Processing Offers To Compromise
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains amendments to the regulations relating
to user fees to provide for the imposition of user fees for the
processing of offers to compromise. The charging of user fees
implements the Independent Offices Appropriations Act.
EFFECTIVE DATE: November 1, 2003.
FOR FURTHER INFORMATION CONTACT: Concerning cost methodology, Eva
Williams, 301-492-5395; concerning the regulations, G. William Beard,
202-622-3620 (not toll free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document amends the regulations relating to user fees to
provide for the imposition of user fees for the processing of offers to
compromise. The charging of user fees implements the Independent
Offices Appropriations Act (IOAA), which is codified at 31 U.S.C. 9701.
On November 6, 2002, a notice of proposed rulemaking (REG-103777-02)
was published in the Federal Register. Approximately 149 comments were
received. A public hearing on the regulations was held on February 13,
2003. The final regulations adopt the rules of the proposed
regulations.
Offers To Compromise
Section 7122 of the Internal Revenue Code (Code) gives the IRS the
authority to compromise any civil or criminal case arising under the
internal revenue laws, prior to the referral of that case to the
Department of Justice. Section 7122 also directs the IRS to prescribe
guidelines for officers and employees of the IRS to determine whether
an offer to compromise is adequate and should be accepted. Guidelines
are contained in Sec. 301.7122-1. Pursuant to Sec. 301.7122-1(b), an
offer may be accepted if there is doubt as to liability, if there is
doubt as to collectibility, or if acceptance will promote effective tax
administration. Pursuant to Sec. 301.7122-1(b)(3), offers may be
accepted to promote effective tax administration if either: (1) The IRS
determines that, although collection in full could be achieved,
collection of the full liability would cause the taxpayer economic
hardship within the meaning of Sec. 301.6343-1, or (2) there are no
other grounds for compromise and there are compelling public policy or
equity considerations.
When an offer to compromise is received, an initial determination
is made as to whether the offer is processable. Currently, an offer is
returned as nonprocessable if the taxpayer is in bankruptcy, has not
filed required tax returns, or has not submitted the offer to
compromise on the proper form. Absent these conditions, the offer is
accepted for processing and cannot be rejected without an independent
administrative review of the decision to reject and, if the taxpayer
chooses to appeal the rejection, independent review by the Office of
Appeals. Even though an offer accepted for processing may later be
returned to the taxpayer if the taxpayer fails to provide requested
information or the IRS determines that the offer was submitted solely
to delay collection, such an offer may not be returned before a
managerial review of the proposed return is completed pursuant to Sec.
301.7122-1(f)(5)(ii).
Explanation of Provisions
The final regulations establish a $150 user fee for the processing
of certain offers to compromise tax liabilities pursuant to Sec.
301.7122-1. The user fee will not apply to offers based solely on doubt
as to liability and offers made by low income taxpayers whose incomes
are at or below the poverty guidelines set by the Department of Health
and Human Services (DHHS), or such other measure the IRS may adopt.
Offers based on doubt as to liability are excepted from the user
fee based on the inequity of the IRS charging a fee to compromise an
uncertain liability when a compromise is based upon a redetermination
or reevaluation of the taxpayer's liability for a tax (and the agreed
upon amount may, in fact, provide for the full payment of the amount
actually owed).
Offers from low income taxpayers are excepted from the fee in light
of section 7122(c)(3)(A), which prohibits the IRS from rejecting an
offer from a low income taxpayer solely on the basis of the amount
offered. Section 7122(c)(3)(A) literally applies to the rejection of an
offer, rather than the return of an offer for failure to pay a user
fee. Requiring payment of a user fee from a low income taxpayer would
undermine section 7122(c)(3)(A) in cases where the taxpayer does not
have the ability to pay the fee. Offers from low income taxpayers are
therefore excepted.
Taxpayers with offers that do not fall within the doubt as to
liability or low income exceptions will submit the user fee along with
the offer to compromise. If the offer is accepted to promote effective
tax administration or is accepted based on doubt as to collectibility
and a determination that collecting more than the amount offered would
create economic hardship within the meaning of Sec. Sec. 301.6343-1,
the fee will be applied to the amount of the offer or, if the taxpayer
requests, refunded to the taxpayer. In other cases, the payment of the
fee will be taken into account in determining the acceptable amount of
the offer and therefore the taxpayer in total will pay no more than the
taxpayer would have paid without the fee. While the fee will not be
refunded if an offer is withdrawn, rejected, or returned as
nonprocessable after acceptance for processing, no additional fee will
be charged if a taxpayer resubmits an offer the IRS determines to have
been rejected or returned in error.
Comments on the Proposed Regulation
Most of the comments on the proposed regulations did not favor the
fee. The comments focused on three concerns: The fee would create an
additional financial hardship on taxpayers who are already experiencing
hardship; the income level for the low income exception to the fee was
too low; and the fee should not be imposed until the offer to
compromise is administered more effectively and efficiently. For the
following reasons, these final regulations follow the proposed
regulations without change.
The most frequent concern in the comments was that the fee would
cause additional financial hardship for taxpayers who are already
experiencing financial hardship. The exception for low income
taxpayers, however, excludes those taxpayers most likely to be
disadvantaged by the user fee.
[[Page 48786]]
Further, the imposition of the fee on other taxpayers will not change
the net amount paid by the taxpayer to reach a compromise; the fee will
be taken into account when considering whether the amount offered is
acceptable. Although taxpayers who must pay the fee will not receive a
refund if the offer is withdrawn, rejected, or returned after being
accepted for processing, the IRS will work closely with taxpayers to
perfect incomplete or inadequate offers before returning or rejecting
them.
A number of commentators were concerned that the DHHS poverty
guidelines used for purposes of the low income exception are too low
and recommended that the exception for low income taxpayers should be
extended to 250% of the DHHS guidelines. The 250% level corresponds to
one of the criteria used for funding low income taxpayer clinics: In
order to receive funding pursuant to section 7526 of the Code, 90% of a
clinic's clients must fall below 250% of the DHHS poverty level. The
commentators pointed to the relationship between section 7526 and
offers to compromise. Section 7526 was enacted contemporaneously with
section 7122(c)(3), which prohibits the IRS from rejecting an offer
from a low income taxpayer based on the amount of the offer.
Commentators argued that imposing a user fee on taxpayers whose incomes
are within 250% of the poverty level thwarts the objective of section
7526 to assist such taxpayers.
The DHHS poverty guidelines are retained as the measure of the
exception for the low income taxpayer. The 250% criteria in section
7526 only applies for purposes of that section; it does not extend to
offers to compromise under section 7122. Had Congress intended to
extend the 250% criteria to offers in compromise under section 7122, it
could have done so. The DHHS poverty guidelines are a reasonable
standard for offers to compromise in light of the fact that the amount
of the fee will be reflected in the amount of the offer. Although some
taxpayers may not be able to pay the fee because the fee exceeds their
collectible assets and income, the DHHS standard will generally cover
such taxpayers. Further, the IRS retains the authority under the final
regulations to adjust the definition of low income taxpayer. The IRS
could, therefore, change the low income standard if, in practice, there
are a significant number of taxpayers with incomes above the DHHS
standard who are experiencing hardship as a result of the fee.
A number of commentators urged that the fee should not be imposed
until inefficiencies and errors in the processing of offers to
compromise are eliminated. In the past year, however, the IRS made
substantial improvements to its offer in compromise program and is now
able to process offers to compromise much more accurately, effectively
and efficiently. The IRS acknowledges that further improvements are
needed and is taking steps to achieve greater accuracy and efficiency,
but the user fee is an integral part of that effort. The user fee
should help reduce the number of frivolous offers and the number of
offers that are either withdrawn, returned, or rejected because the
offeror would not provide adequate information for the IRS to process
the offer or would not offer an amount that reflects the taxpayer's
ability to pay. Limiting the number of offers that will be withdrawn,
returned, or rejected will enable the IRS to direct its resources
towards the timely and efficient processing of acceptable offers. In
addition, the final regulation was amended to make clear that no
additional fee will be charged if a taxpayer resubmits an offer the IRS
determines to have been rejected or returned in error after acceptance
for processing.
Authority
The IOAA authorizes agencies to prescribe regulations that
establish charges for services provided by the agency (user fees). The
charges must be fair and be based on the costs to the Government, the
value of the service to the recipient, the public policy or interest
served, and other relevant facts. The IOAA provides that regulations
implementing user fees are subject to policies prescribed by the
President, which are currently set forth in OMB Circular A-25, 58 FR
38142 (July 15, 1993).
The OMB Circular encourages user fees for Government-provided
services that confer benefits on identifiable recipients over and above
those benefits received by the general public. Under the OMB Circular,
an agency that seeks to impose a user fee for Government-provided
services must calculate its full cost of providing those services. In
general, the amount of a user fee should recover the cost of providing
the special service, unless the Office of Management and Budget grants
an exception. Pursuant to the guidelines in the OMB Circular, the IRS
calculated its cost of providing services under the offer in compromise
program. The IRS determined that the full cost of investigating doubt
as to collectibility and effective tax administration offers averages
$471 when streamlined procedures are used to investigate the financial
condition of the taxpayer, and $3,983 when more detailed investigations
are used. The IRS estimates that 70% of offers are processed under
streamlined procedures. OMB granted an exception to the ``full cost''
requirement of the OMB Circular.
The Treasury, Postal Service, and General Government Appropriations
Act of 1995, Public Law 103-329 (108 Stat. 2382) (the 1995
Appropriations Act) provides that the Secretary may establish new fees
for services provided by the IRS where such fees are authorized by
another law, such as the IOAA.
The user fees are implemented under the authority of the IOAA, the
OMB Circular, and the 1995 Appropriations Act.
Special Analysis
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It is hereby
certified that these regulations will not have a significant economic
impact on a substantial number of small entities. Accordingly, a
regulatory flexibility analysis is not required. This certification is
based on the information that follows. The economic impact of these
regulations on any small entity will result from the entity being
required to pay a fee prescribed by these regulations in order to
obtain a particular service. The dollar amount of the fee is not,
however, substantial enough to have a significant economic impact on
any entity subject to the fee. Pursuant to section 7805(f) of the Code,
the preceding notice of proposed rulemaking was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these regulations is G. William Beard,
Office of Associate Chief Counsel (Procedure and Administration),
Collection, Bankruptcy and Summonses Division.
List of Subjects in 26 CFR Part 300
Estate taxes, Excise taxes, Gift taxes, Income taxes, Reporting and
recordkeeping requirements, User fees.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 300 is amended as follows:
[[Page 48787]]
PART 300--USER FEES
0
Paragraph 1. The authority citation for part 300 continues to read as
follows:
Authority: 31 U.S.C. 9701.
0
Par. 2. Section 300.0 is amended as follows:
0
1. Paragraph (b)(3) is added.
0
2. Paragraph (c) is revised.
The addition and revision read as follows:
Sec. 300.0 User fees; in general.
* * * * *
(b) * * *
(3) Processing an offer to compromise.
(c) Effective Date. This part 300 is applicable March 16, 1995,
except that the user fee for processing offers to compromise is
applicable November 1, 2003.
0
Par. 3. Section 300.3 is added to read as follows:
Sec. 300.3 Offer to compromise fee.
(a) Applicability. This section applies to the processing of offers
to compromise tax liabilities pursuant to Sec. 301.7122-1 of this
chapter. Except as provided in this section, this fee applies to all
offers to compromise accepted for processing.
(b) Fee. (1) The fee for processing an offer to compromise is
$150.00, except that no fee will be charged if an offer is--
(i) Based solely on doubt as to liability as defined in Sec.
301.7122-1(b)(1) of this chapter; or
(ii) Made by a low income taxpayer, that is, an individual who
falls at or below the dollar criteria established by the poverty
guidelines updated annually in the Federal Register by the U.S.
Department of Health and Human Services under authority of section
673(2) of the Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357,
511) or such other measure that is adopted by the Secretary.
(2) The fee will be applied against the amount of the offer, unless
the taxpayer requests that it be refunded, if the offer is--
(i) Accepted to promote effective tax administration pursuant to
Sec. 301.7122-1(b)(3) of this chapter; or
(ii) Accepted based on doubt as to collectibility and a
determination that collection of an amount greater than the amount
offered would create economic hardship within the meaning of Sec.
301.6343-1 of this chapter.
(3) Except as otherwise provided in this paragraph (b), the fee
will not be refunded to the taxpayer if the offer is accepted,
rejected, withdrawn, or returned as nonprocessable after acceptance for
processing.
(4) No additional fee will be charged if a taxpayer resubmits an
offer the Secretary determines to have been rejected in error or
returned in error after acceptance for processing.
(c) Person liable for the fee. The person liable for the processing
fee is the taxpayer whose tax liabilities are the subject of the offer.
Robert E. Wenzel,
Deputy Commissioner for Services and Enforcement.
Approved: July 17, 2003.
Pamela F. Olsen,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 03-20933 Filed 8-14-03; 8:45 am]
BILLING CODE 4830-01-P