Getting More by Asking Less: Justifying and Reforming Tax Law’s Offer in Compromise Procedure

Authors

Shu-Yi Oei, Duke Law SchoolFollow

Document Type

Article

Publication Date

2012

Keywords

taxation, tax policy, Extinguishment of debts, debt forgiveness

Abstract

The Offer in Compromise (OIC) is a procedure by which the IRS may agree to forgive a portion of the tax liabilities of certain taxpayers. This Article suggests a framework for evaluating the effectiveness of any proposed reforms to this procedure. It presents three arguments that support forgiving tax debts through devices such as the OIC. These arguments are rooted in revenue-raising, fairness, rehabilitative, and socioeconomic considerations. Unfortunately, an analysis of the OIC’s recent history shows that its current structure tends to undermine its effectiveness. The power to effectuate the procedure is dispersed among four stakeholders with divergent interests: Congress, the IRS, the taxpayer, and financial and other supporters of the taxpayer. Each of these players has conflicting and contradictory interests in OIC-procedure outcomes. Over time, the actions and decisions of each of these players can lead to conflicting and counterproductive behaviors and responses by other players, and this undermines the program’s overall effectiveness. Given this dynamic among stakeholders, reforms that would minimize or eliminate such downward-spiraling interactions of divergent interests should be adopted. Conversely, reforms likely to provoke or exacerbate such interactions should be avoided. This Article provides examples of each type of reform.

Citation

Shu-Yi Oei, Getting More by Asking Less: Justifying and Reforming Tax Law’s Offer in Compromise Procedure, 160 University of Pennsylvania Law Review 1071-1137 (2012)