On Thursday, the IRS raised its user fee for offers in compromise (OIC) from $186 to $205, but also expanded its definition of low-income taxpayers who are exempt from the fee (T.D. 9894). The increased fee is lower than the $300 fee the IRS had proposed in 2016 (REG-108934-16).
An OIC is an agreement between a taxpayer and the IRS to settle a tax debt for less than the full amount owed. An OIC may be an option for taxpayers who cannot pay their full tax debt or for whom doing so would create a financial hardship. It is an additional relief provision from an installment agreement, which allows taxpayers who cannot pay their full tax debt by the due date to pay over time.
The IRS received four comments on the proposed regulations and a request for a public hearing, which it held on Dec. 16, 2016. It was in response to the comments received that it lowered the proposed fee increase. In the preamble to T.D. 9894, the IRS addressed each of the comments received in detail. The comments ran the gamut from an accusation of conflicts of interest to complaints that most taxpayers are so short of cash they cannot come up with small amounts to pay for emergencies.
Sec. 7122(c)(3), as amended by the Taxpayer First Act, P.L. 116-25, exempts certain low-income taxpayers from the OIC fee. It defines low-income taxpayers as those with adjusted gross income (AGI) that “does not exceed 250% of the applicable poverty level (as determined by the Secretary).” Normally, the IRS determines if taxpayers fall at or below 250% of the poverty level by looking at their household’s size and gross monthly income. Consistent with Sec. 7122(c)(3), under the final regulations the IRS will now also look at a taxpayer’s AGI from the most recent tax return to determine whether it is at or below 250% of the poverty level.
The increased fee applies to OICs submitted after April 27, 2020.
— Sally P. Schreiber (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.