IRS Raises Fees For Installment Payments and Offers in Compromise

The Internal Revenue Service has released proposed regulations that would increase the user fees for installment payment agreements and offers in compromise.

The IRS has not raised the fees for paying off outstanding tax debts since 2007. The IRS currently charges $105 for entering into an installment agreement, except that the fee is $52 for a direct debit installment agreement, in which the taxpayer authorizes the IRS to request the monthly electronic transfer of funds from the taxpayer's bank account to the IRS. The fee is $43 if the taxpayer is a low-income taxpayer. The IRS currently charges $45 for restructuring or reinstating an installment agreement that is in default. The IRS said it recently completed a routine review of the installment agreement program and determined that the full cost of an installment agreement is $282, except that the cost is only $122 for a direct debit installment agreement. The IRS also determined that the full cost of restructuring or reinstating an installment agreement is $85.

After discussions with the OMB, the IRS has proposed to raise the fee for entering into an installment agreement to $120, and to increase the proposed fee for restructuring or reinstating an installment agreement to $50. The fee for a direct debit installment agreement would remain $52, and low-income taxpayers would continue to pay $43 for any new installment agreement, including a direct debit installment agreement.

The proposed regulations would not increase the fee for direct debit installment agreements because these agreements have a significantly higher completion rate, the IRS pointed out. The proposed fee hikes aim to balance the need to recover costs with the goals of encouraging the use of installment agreements in general and direct debit installment agreements in particular.

The IRS currently charges $150 for processing an offer to compromise, except that no fee is charged if an offer is based solely on doubt as to liability, or made by a low-income taxpayer. The fee is generally applied to the unpaid taxes if the offer is accepted to promote effective tax administration or accepted based on doubt as to collectability. In the latter case, a determination must be made that collection of an amount greater than the amount offered would create economic hardship. The amount of the fee has not changed since 2003, the IRS noted. As required by the OMB Circular, the IRS recently completed a routine review of the offer to compromise program and determined that the full cost of an offer to compromise is $2,718.

After discussions with OMB, the IRS has proposed to raise the fee for processing an offer to compromise to $186. Low-income taxpayers and taxpayers making offers based solely on doubt as to liability would continue to pay no fee. As now, the fee is generally applied to the unpaid taxes if the offer is accepted to promote effective tax administration or accepted based on doubt as to collectability. In the latter case, a determination must be made that collection of an amount greater than the amount offered would create economic hardship. “The proposed fee balances the need to recover costs with the goal of encouraging offers in compromise,” said the IRS.

The new fee rate for both installment agreements and offers in compromise would take effect on Jan. 1, 2014.

Source:  Federal Register at http://www.gpo.gov/fdsys/pkg/FR-2013-08-30/html/2013-21243.htm.