IRS Offers in Compromise: Performance Has Been Mixed; Better Management Information and Simplification Could Improve the Program

IRS agreed with our recommendation stating that staffing levels should be adjusted in response to changing program needs and that realignment of staff working offer in compromise cases in field locations would be done. As of August 2006, IRS had reassigned 112 field offer staff to other collection work. Also, IRS information showed that the number of new cases added to its offer in compromise inventory in fiscal year 2006 continued the prior years' trend by declining sharply. By reassigning the 112 staff, IRS improved the offer in compromise program's productivity, reduced cost per offer, and over a period of 2 years will save about $20.5 million in staff costs to be allocated to other collection work. The savings are based on IRS supplied estimates of the average salary and benefit costs for the 112 staff who were transferred from the offer in compromise program. A March 2007 report by the Treasury Inspector General for Tax Administration showed, on average, IRS spent less time processing offers in fiscal year 2006 compared to fiscal year 2005, which reduced per offer cost.

IRS has taken actions to implement this recommendation. Regarding developing meaningful measures of performance for processing timeliness for taxpayers, IRS completed studies of repeat offers in June and July 2008 and found that repeat offers can best be reduced by getting taxpayers to submit a processable offer initially. According to an analysis by IRS as of June 2008, a vast majority of offers were meeting IRS's timeliness goals. As an added step, IRS also plans to work more closely with taxpayers during offer processing to help ensure that offer processing timeliness is at a minimum. Regarding developing meaningful measures of performance for accessibility, IRS used the results of a 2006 customer satisfaction survey to identified improvements for accessibility relating to alternative resolutions and incorporated these procedures into the Internal Revenue Manual in October 2007. Regarding developing meaningful measures of performance for compliance, IRS developed new reports to monthly monitor post-acceptance compliance starting in June 2007. The reports show measures such as the number of defaulted offers compared to all accepted offers, and information on reasons for defaults such as failure to adhere to the 5-year compliance rule and failure to make agreed upon payments.

IRS agreed with this recommendation and stated that it takes taxpayer needs and other benefits into consideration as part of the basis for setting timeliness goals. In particular, IRS stated that it used the results of a 2006 customer satisfaction survey of taxpayers who participated in the offer in compromise (OIC) program in setting processing timeliness goals.

IRS conducted two studies to help determine reasons for performance trends, the causes of the growth in repeat offers, how repeat offers affect timelines, and used results of a 2006 customer satisfaction survey to help assess trends in accessibility. Office of Program Evaluation and Risk Analysis (OPERA) completed a study of repeat offers in June 2008. Small Business/Self Employed conducted an independent representative sample of repeat offers in September 2007 to analyze their effect on timeliness. Based on the studies, IRS found that the key to reducing repeat offers is getting taxpayers to submit processable offers initially. IRS also stated that the new process-ability criteria implemented in July 2006, along with increased outreach and education efforts and the revised offer application should help to reduce repeat offers, meet timeliness goals, and not impede accessibility to the program. IRS also used the results of a 2006 customer satisfaction survey to identify five action items that address both accessibility and timeliness and will revise the IRM accordingly. Also, in December 2006, IRS completed a pilot study of the hand-off unit and determined that it could use other procedures to more efficiently expedite the handling of rejected and withdrawn offer cases to ACS and field processing. As a result, the hand-off unit is disbanded.