Getting More By Asking Less: Justifying and Reforming Tax Law’s Offer-In- Compromise Procedure

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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 pro-
cedure. It presents three arguments that support forgiving tax debts through
devices such as the OIC. These arguments are rooted in revenue-raising, fair-
ness, 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 finan-
cial 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 counterproduc-
tive 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.

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