"Sometimes taxpayers get behind on their payments and need a special arrangement to meet their debts," Grassley said. "Unfortunately, the IRS bureaucracy can make those arrangements too frustrating and slow for well-meaning taxpayers. This legislation will smooth out the kinks in these programs to better serve taxpayers."
Grassley is the co-author of the bipartisan Tax Administration Good Government Act, which contains a series of measures to make the IRS run more smoothly. The two measures that are likely to be of greatest interest to taxpayers improve the administration of the installment agreement and offers in compromise programs, as follows:
Installment agreements. Taxpayers enter into installment agreements with the IRS to pay their taxes over a prescribed period of time. The existing program doesn't give the IRS the flexibility to accept partial payment rather than full payment during the installment period.
Grassley's new legislation authorizes the partial payment of installment agreements. The proposal restores the authority that the IRS had prior to 1998 to enter into installment agreements with taxpayers who want to resolve their tax liability but can't afford to make payments large enough to fully pay the liability at the end of the term of the installment agreement. By adding flexibility to this program, the proposal would allow more taxpayers to fulfill their obligations and restore their good standing with the IRS. Also, the proposal would bring in money to the U.S. Treasury that the government currently considers uncollectible.
The legislation also would encourage automated withdrawals from a taxpayer's bank account to encourage taxpayers to enter into installment agreements. Now, the IRS imposes a $43 user fee on taxpayers entering into an installment agreement. The proposal would waive the user fee if the taxpayer agrees to automated withdrawal of installment payments from a bank account.
The legislation also would terminate installment agreements for failure to file returns and failure to make tax deposits. The proposal would stop the downward spiral where taxpayers owe more and the government collects less. Although a significant number of taxpayers violate the terms of their installment agreements by failing to file their tax returns on time or make required federal tax deposits, the IRS isn't permitted to terminate installment agreements for these reasons.
The offers in compromise program. The program also exists for taxpayers to clear their debts and restore their good standing with the IRS by negotiating tax payments, usually over longstanding debts when amounts owed are in dispute or the taxpayer is unable to pay the full amount.
This program often works inefficiently for taxpayers, according to the General Accounting Office, which analyzed the program at Grassley's request. For example, the IRS often takes so long to get to someone's file that the information is outdated, and the taxpayer has to re-submit his information.
"These problems hurt the taxpayer who owes money and wants to settle his debts and get on with his life," Grassley said. "They hurt all taxpayers in general, because it means tax money isn't coming into the Treasury that could be coming in. We have to solve these problems. This program is too important not to work."
Grassley's new legislation removes an impediment to the speedy processing of offers in compromise decisions. IRS attorneys are currently required to review offers where the tax assessed, including penalties and interest, exceeds $50,000. As a practical matter, IRS lawyers offer little in the way of review and often contribute to the delay in processing these decisions. The proposal would remove the dollar threshold and give the IRS discretion in determining when a chief counsel opinion is necessary.
"Nobody would say they enjoy paying taxes, but dealing with the IRS doesn't have to be unpleasant," Grassley said. "It's Congress' responsibility to take up legislation to improve IRS efficiency for the taxpayers' benefit."