Changes to the Internal Revenue Service's Offer in Comprise Program went into effect July 16 -- with the most noticeable difference being that taxpayers who submit lump sum offers to the agency must now make a 20 percent nonrefundable, up-front payment to the IRS.

Another change is that an OIC application is deemed accepted if the IRS fails to act upon it within two years.

The modifications are part of a new law, the Tax Increase Prevention and Reconciliation Act of 2005, which made major changes to the program, tightening the rules for lump sum offers and periodic-payment offers.

An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment in certain circumstances. A lump-sum OIC means any offer of payments made in five or fewer installments, while more payment installments are considered periodic payment OICs. Taxpayers submitting requests for periodic-payment OICs must include the first proposed installment payment with their application.

Under the new law, taxpayers qualifying as low-income, or filing an offer based solely on doubt as to liability, qualify for a waiver of the new partial payment requirements. Complete information on the entire collection process and the OIC program are available at on WebCPA:GAO Looks at IRS Offers in Compromise Program (May 25, 2006)

Taxpayer Advocate Calls for Increased Voluntary Compliance (July 11, 2005)Grassley, Baucus Call for OIC Investigation (Dec. 2, 2004)

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