The Effective Tax Administration Hardship Offer-in-Compromise: Improving the Standards of Review and Increasing the Acceptance Rates¹

By Jeffrey A. Titus²

EXECUTIVE SUMMARY

Under the current law, Section 7122(c) of the Internal Revenue Code ("IRC"),³ the Internal Revenue Service ("IRS") is permitted to compromise most civil and criminal tax liabilities where it would promote "Effective Tax Administration" based upon financial hardship. The law provides statutory and regulatory guidance to evaluate what is an acceptable Effective Tax Administration ("ETA") hardship offer in compromise. Further, the Regulations and the Internal Revenue Manual ("IRM") contain the framework and guidance on such offers. Three problems exist despite the guidance: (1) there is a lack of knowledge about these offers both by IRS professionals and practitioners, (2) there is a conflict within the guidance as to evaluating financial hardship, and (3) there is inconsistent treatment of taxpayers.

As a result of these problems, deserving taxpayers are discouraged from submitting ETA hardship offers primarily because the practitioners that regularly deal with compromise situations cannot adequately explain the basis for an acceptable ETA hardship offer to their client. Furthermore, experienced practitioners do not submit such offers because they doubt the possibility of acceptance, and do not wish to waste a taxpayer’s time and money.