[Federal Register Volume 67, Number 215 (Wednesday, November 6, 2002)]
[Proposed Rules]
[Pages 67573-67576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28249]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[REG-103777-02]
RIN 1545-BA54


User Fees for Processing Offers to Compromise

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed amendments to the regulations 
relating to user fees to provide for the imposition of user fees for 
the processing of offers to compromise. The charging of user fees 
implements the Independent Offices Appropriations Act (IOAA). This 
document also contains a notice of public hearing on these proposed 
regulations.

DATES: Written and electronic comments must be received by February 4, 
2003. Outlines of topics to be discussed at the public hearing 
scheduled for Thursday, February 13, 2003, must be received by 
Thursday, January 23, 2003.

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ADDRESSES: Send submissions to: CC:ITA:RU (REG-103777-02), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG-103777-02), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. Alternatively, taxpayers may send submissions 
electronically directly to the IRS Internet site at www.irs.gov/regs. 
The public hearing will be held in Room 4718 of the Internal Revenue 
Service Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning submissions and/or to be 
placed on the building access list to attend the hearing, Treena 
Garrett, 202-622-7180; concerning cost methodology, Eva Williams, 202-
622-6400; concerning the regulations, G. William Beard, 202-622-3620 
(not toll free numbers).

SUPPLEMENTARY INFORMATION:

Offers To Compromise

    Section 7122 of the Internal Revenue Code gives the IRS the 
authority to compromise any civil or criminal case arising under the 
internal revenue laws, prior to the referral of that case to the 
Department of Justice. Section 7122 also directs the IRS to prescribe 
guidelines for officers and employees of the IRS to determine whether 
an offer to compromise is adequate and should be accepted. Guidelines 
are contained in Sec.  301.7122-1. Pursuant to Sec.  301.7122-1(b), an 
offer may be accepted if there is doubt as to liability, if there is 
doubt as to collectibility, or if acceptance will promote effective tax 
administration. Pursuant to Sec.  301.7122-1(b)(3), offers may be 
accepted to promote effective tax administration if either: (1) The IRS 
determines that, although collection in full could be achieved, 
collection of the full liability would cause the taxpayer economic 
hardship within the meaning of Sec.  301.6343-1, or (2) there are no 
other grounds for compromise and there are compelling public policy or 
equity considerations.
    When an offer to compromise is received, an initial determination 
is made as to whether the offer is processable. Currently, an offer is 
returned as nonprocessable if the taxpayer is in bankruptcy, has not 
filed required tax returns, or has not perfected the offer by properly 
preparing the offer to compromise form and submitting other required 
documents. Absent these conditions, the offer is accepted for 
processing and cannot be rejected without an independent administrative 
review of the decision to reject and, if the taxpayer chooses to appeal 
the rejection, independent review by the Office of Appeals. Even though 
an offer accepted for processing may later be returned to the taxpayer 
if the taxpayer fails to provide requested information or the IRS 
determines that the offer was submitted solely to delay collection, 
such an offer may not be returned before a managerial review of the 
proposed return is completed pursuant to Sec.  301.7122-1(f)(5)(ii).
    When the IRS accepts an offer, the taxpayer receives the benefit of 
resolving its tax liabilities for a compromised amount, provided the 
taxpayer complies with the terms of the compromise agreement. To ensure 
that the taxpayer complies with the terms of the compromise agreement, 
the IRS must continue to monitor the taxpayer for a period of five 
years after the compromise is reached.
    Even if an offer is rejected, the taxpayer receives the benefit of 
having the IRS process the offer and make an individualized 
determination as to the adequacy of the amount offered. In order to 
make that determination, the IRS must value assets, verify income-
earning potential, and compute allowable expenses. The taxpayer also 
receives the benefit of certain deferred collection activities. The IRS 
generally does not make any levies to collect liabilities that are the 
subject of an offer during the period the IRS is evaluating whether the 
offer will be accepted or rejected, for 30 days immediately following 
the rejection of an offer, and during any period when a timely appeal 
from the rejection is being considered by the Office of Appeals.

Establishment of User Fees on Offers To Compromise

    The IRS is proposing user fees for the processing of certain offers 
to compromise tax liabilities pursuant to Sec.  301.7122-1.
    For the IRS to process an offer, proposed section 300.3 establishes 
a $150 fee. The user fee would be paid out of the amount determined to 
be collectible from the taxpayer and would be taken into account when 
considering whether the amount offered is acceptable. Thus, imposition 
of the fee would not change the net amount paid by the taxpayer to 
compromise the liabilities.
    The proposed user fee would not apply to offers based on doubt as 
to liability, offers made by certain low income taxpayers, offers 
accepted to promote effective tax administration, and offers accepted 
based on doubt as to collectibility where there has also been a 
determination that, although an amount greater than the amount offered 
could be collected, collection of more than the amount offered would 
create economic hardship within the meaning of Sec.  301.6343-1 
(currently referred to as ``special circumstances'' under IRS 
procedures). In most of these circumstances, the fees would be waived 
before being collected from the taxpayer. However, if the fee is 
collected from the taxpayer, but the offer is accepted to promote 
effective tax administration or based on considerations of economic 
hardship, the processing fee either would be refunded to the taxpayer 
or applied to the amount of the offer.
    Offers based on doubt as to liability would be excepted from the 
user fee based on the inequity of the IRS charging a fee to compromise 
an uncertain liability when a compromise is based upon a reassessment 
of the taxpayer's liability for a tax (and the agreed upon amount may, 
in fact, provide for the full payment of the amount actually owed).
    Offers made by low income taxpayers would be excepted from the user 
fee in light of section 7122(c)(3)(A), which prohibits the IRS from 
rejecting an offer from a low income taxpayer solely on the basis of 
the amount offered. Section 7122(c)(3)(A) literally applies to the 
rejection of an offer rather than the return of an offer for failure to 
pay a user fee. However, requiring payment of a user fee from a low 
income taxpayer would undermine section 7122(c)(3)(A) in cases where 
the taxpayer does not have the ability to pay the fee. Offers from low 
income taxpayers therefore would be excepted.
    Offers accepted to promote effective tax administration would be 
excepted from the user fee because the collection of a fee in these 
circumstances would undermine the purposes of these programs. Offers 
accepted based on doubt as to collectibility and a determination that 
collecting more than the amount offered would create economic hardship 
within the meaning of Sec.  301.6343-1 would also be excepted because 
the criteria for these offers is the same as offers accepted to promote 
effective tax administration based on economic hardship.

Authority

    The IOAA authorizes agencies to prescribe regulations that 
establish charges for services provided by the agency (user fees). The 
charges must be fair and be based on the costs to the

[[Page 67575]]

Government, the value of the service to the recipient, the public 
policy or interest served, and other relevant facts. The IOAA provides 
that regulations implementing user fees are subject to policies 
prescribed by the President, which are currently set forth in OMB 
Circular A-25, 58 FR 38142 (July 15, 1993) (the OMB Circular).
    The OMB Circular encourages user fees for Government-provided 
services that confer benefits on identifiable recipients over and above 
those benefits received by the general public. Under the OMB Circular, 
an agency that seeks to impose a user fee for Government-provided 
services must calculate its full cost of providing those services. In 
general, the amount of a user fee should recover the cost of providing 
the special service, unless the Office of Management and Budget (OMB) 
grants an exception. Pursuant to the guidelines in the OMB Circular, 
the IRS has calculated its cost of providing services under the offer 
in compromise program. The IRS has determined that the full cost of 
investigating doubt as to collectibility and effective tax 
administration offers averages $471 when streamlined procedures are 
used to investigate the financial condition of the taxpayer, and $3,983 
when more detailed investigations are used. The IRS estimates that 70 
percent of offers are processed under streamlined procedures. OMB has 
granted an exception to the ``full cost'' requirement of the OMB 
Circular.
    The Treasury, Postal Service, and General Government Appropriations 
Act of 1995, Public Law 103-329 (108 Stat. 2382) (the 1995 
Appropriations Act) provides that the Secretary may establish new fees 
for services provided by the IRS where such fees are authorized by 
another law, such as the IOAA.
    The proposed user fees will be implemented under the authority of 
the IOAA, the OMB Circular, and the 1995 Appropriations Act.

Effective Date

    These regulations are proposed to be effective thirty days after 
the date of publication in the Federal Register of the final 
regulations.

Special Analysis

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. Accordingly, a 
regulatory flexibility analysis is not required. This certification is 
based on the information that follows. The economic impact of these 
regulations on any small entity would result from the entity being 
required to pay a fee prescribed by these regulations in order to 
obtain a particular service. The dollar amount of the fee is not, 
however, substantial enough to have a significant economic impact on 
any entity subject to the fee. Pursuant to section 7805(f) of the 
Internal Revenue Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department request comments on the clarity of 
the proposed regulations and how they may be made easier to understand. 
All comments will be available for public inspection and copying.
    A public hearing has been scheduled for Thursday, February 13, 
2003, at 10 a.m. in room 4718, Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit electronic or 
written comments and an outline of the comments to be discussed and the 
time to be devoted to each topic (signed original and eight (8) copies) 
by Thursday, January 23, 2003. A period of 10 minutes will be allotted 
to each person for making comments. An agenda showing the scheduling of 
the speakers will be prepared after the deadline for receiving outlines 
has passed. Copies of the agenda will be available free of charge at 
the hearing.

Drafting Information

    The principal author of these regulations is G. William Beard, 
Office of Associate Chief Counsel (Procedure and Administration), 
Collection, Bankruptcy and Summonses Division.

List of Subjects in 26 CFR Part 300

    Estate taxes, Excise taxes, Gift taxes, Income taxes, Reporting and 
recordkeeping requirements, User fees.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 300 is proposed to be amended as follows:

PART 300--USER FEES

    1. The authority citation for part 300 continues to read as 
follows:

    Authority: 31 U.S.C. 9701.

    2. Section 300.0 is amended as follows:
    1. Paragraph (b)(3) is added.
    2. Paragraph (c) is revised.
    The addition and revision read as follows:


Sec.  300.0  User fees, in general.

* * * * *
    (b) * * *
    (3) Processing an offer to compromise.
    (c) Effective Date. This part 300 is applicable March 16, 1995, 
except that the user fee for processing offers to compromise is 
applicable thirty days after the date of publication in the Federal 
Register of the final regulations.
    3. Section 300.3 is added to read as follows:


Sec.  300.3  Offer to compromise fee.

    (a) Applicability. This section applies to the processing of offers 
to compromise tax liabilities pursuant to Sec.  301.7122-1 of this 
chapter. Except as provided in this section, this fee applies to all 
offers to compromise accepted for processing.
    (b) Fee. (1) The fee for processing an offer to compromise is 
$150.00, except that no fee will be charged if an offer is--
    (i) Based on doubt as to liability as defined in Sec.  301.7122-
1(b)(1) of this chapter; or
    (ii) Made by a low income taxpayer, that is, a taxpayer who falls 
at or below the dollar criteria established by the poverty guidelines 
updated annually in the Federal Register by the U.S. Department of 
Health and Human Services under authority of section 673(2) of the 
Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357, 511) or such 
other measure that is adopted by the Secretary.
    (2) The fee will, in the taxpayer's discretion, either be refunded 
to the

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taxpayer or applied against the amount of the offer if the offer is--
    (i) Accepted to promote effective tax administration pursuant to 
Sec.  301.7122-1(b)(3) of this chapter; or
    (ii) Accepted based on doubt as to collectibility and a 
determination that collection of an amount greater than the amount 
offered would create economic hardship within the meaning of Sec.  
301.6343-1 of this chapter.
    (3) Except as otherwise provided in this paragraph (b), the fee 
will not be refunded to the taxpayer if the offer is accepted, 
rejected, withdrawn, or returned as nonprocessable after acceptance for 
processing.
    (c) Person liable for the fee. The person liable for the processing 
fee is the taxpayer whose tax liabilities are the subject of the offer.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-28249 Filed 11-5-02; 8:45 am]
BILLING CODE 4830-01-P