Getting More by Asking Less: Justifying and Reforming Tax Law's Offer-in-Compromise Procedure
Tulane Law School
August 12, 2011
160 University of Pennsylvania Law Review, Forthcoming, 2012
Tulane Public Law Research Paper No. 11-04
The Offer in Compromise (“OIC”) is a procedure by which distressed taxpayers may be able to get a portion of their tax liability forgiven by the IRS. This Article proposes a framework for evaluating the effectiveness of any proposed reforms of the procedure. It presents four arguments that support the forgiveness of tax debts through devices like the OIC procedure. These arguments are rooted in revenue-raising, fairness, rehabilitative, socio-economic, and jurisprudential considerations. Unfortunately, an analysis of the procedure's recent history shows that it is structured in a way that tends to undermine its effectiveness. The power to effectuate the procedure is dispersed among four players with divergent interests: (1) Congress, (2) the IRS, (3) the taxpayer, and (4) financial and other supporters of the taxpayer. Each of these players has conflicting and contradictory interests in OIC procedure outcomes. And, over time, the actions and decisions of each player lead to conflicting and counterproductive behaviors and responses by other players, such that overall program effectiveness is undermined. Given this dynamic between stakeholders, reforms that minimize or eliminate such downward-spiraling interactions of divergent interests should be adopted. On the other hand, reforms likely to provoke or exacerbate such interactions should be dismissed. This Article provides examples of each type of reform.
Number of Pages in PDF File: 67
Keywords: Taxation, tax policy, debtor-creditor law, debt forgiveness
JEL Classification: H20, H24, H25, H26, H29Accepted Paper Series
Date posted: August 15, 2011 ; Last revised: April 4, 2012
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