As a CPA, tax professional, or enrolled agent, staying up-to-date on changes to IRS regulations is essential to providing the best possible service to your clients. One recent change that you need to be aware of is the increase in the IRS offer in compromise application fee, which is set to take effect on April 27, 2020.
This fee increase is mandatory and will affect all clients who wish to apply for an offer in compromise. It’s important to have a clear understanding of the final regulations and any exemptions that may apply to your clients, so that you can provide them with the most accurate information and help them navigate this change with confidence. In this article, we’ll delve into the specifics of the IRS offer in compromise application fee increase, including the reasoning behind it, the exemptions that may apply, and how you can use tax resolution software to streamline the application process and better serve your clients.
TD 9894—User Fees for Offers in Compromise
In a final reg, the IRS has increased the offer in compromise fee to $205 and added another exemption from the fee for certain low-income taxpayers to conform with the Code.
Background: In general, an offer in compromise (OIC) is an agreement between a taxpayer and IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes that the liability can be paid in full through a payment agreement or in a lump sum. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. (Code Sec. 7122)
Under Reg. § 300.3(b)(1), the user fee for processing an OIC is $186. The fee applies to all OICs accepted for processing, except that no fee will be charged if an offer is:
- Based solely on doubt as to liability (Reg. § 300.3(b)(1)(i)); or
- Made by a low-income taxpayer, defined as an individual who falls at or below the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the Department of Health and Human Services or another measure that’s adopted by the IRS (Reg. § 300.3(b)(1)(ii)).
In 2016, the IRS proposed raising the OIC fee to $300. See Proposed regs would increase offer in compromise fee to $300 (10/20/2016).
Section 1102 of the Taxpayer First Act (P.L. 116-25) added Code Sec. 7122(c)(3). Code Sec. 7122(c)(3) exempts certain low-income taxpayers from payment of the user fee otherwise required in connection with the submission of an offer in compromise. These low-income taxpayers are individuals with adjusted gross income, as determined for the most recent tax year for which such information is available, which does not exceed 250% of the applicable poverty level (as determined by the IRS). Section 1102(b) of the Taxpayer First Act provides that Code Sec. 7122(c)(3) applies to offers-in-compromise submitted after July 1, 2019.The final reg does two things:
First, it raises the OIC fee to $205 for OICs submitted on or after April 27, 2020. (Reg. § 300.3(b)(1)) Second, it adds another situation in which low-income taxpayers are exempt from the OIC fee by following the wording of Code Sec. 7122(c)(3) exactly. (Reg. § 300.3(b)(1)(iii))
The IRS will continue to biennially review the OIC fee, and it will adjust and increase the fee as appropriate. (Preamble to TD 9894)
Effective date: The final reg is effective April 27, 2020. (Reg. § 300.3(d))