On December 6, 2018, Jack Snyder of the University of Baltimore Low-Income Taxpayer Clinic took part in a panel at the annual Low-Income Taxpayer Clinic Conference in Washington, D.C.
Professor Snyder spoke on the topic of “Effective Tax Administration Offers in Compromise.” Joining him on the panel was Professor Joshua Wease of the Michigan State LITC.
An Offer in Compromise allows a taxpayer to settle an outstanding tax debt with the IRS for less than the full amount due. Most Offers are based on doubt as to collectability, a demonstration that the taxpayer lacks the assets or monthly income to pay the tax liability in full. Effective Tax Administration (“ETA”) offers, on the other hand, allow taxpayers to settle a tax debt on the basis of general economic hardship or a variety of specific public policy reasons even if the taxpayer can otherwise afford to pay in full.
For example, as Prof. Snyder explained, many of the UB LITC’s clients have little or no net monthly income but are “asset-rich” due to retirement plan savings or equity in a home in Maryland’s high-value real estate market. Such taxpayers need to preserve these assets in order to survive and cannot use them to pay down their tax liabilities. In some cases, an ETA offer is the optimal tool to resolve such a taxpayer’s problem.
The panelists also discussed the rarer “public policy” ETA offers. One public policy basis for an offer, Prof. Snyder noted, is when the tax liability arose due to the crime or fraud of a third party, such as a withdrawal from the taxpayer’s retirement plan at the behest of a “friend” who then absconds with the money.
The panelists cautioned that ETA offers can be difficult to obtain. The IRS is less familiar with ETA offers than with other types. The panelists encouraged representatives considering submitting such offers to the IRS to research the relevant facts and law extremely thoroughly and to be prepared to educate the IRS employee handling the matter. Even then, success is not guaranteed.
The LITC Conference is presented annually by the LITC Program Office of the Taxpayer Advocate Service. All directors of low-income taxpayer clinics nationwide attend the conference, where they share information on emerging issues and legal challenges faced by low-income taxpayers.