IRS Fees: Is An Increase Always A Bad Thing?


Just which IRS fees are we talking about? In this case, we’re talking about the IRS fees for Offers in Compromise and Installment Agreements. Some interesting facts about this:

  • The general fee for an Offer in Compromise will rise on January 1, 2014, from $150 to $186. The curious thing about this is that the amount finally decided upon is so much below the actual cost of the process to the agency, which they report to be $2,718. If you can't pay this fee, you can also request a waiver.
  • To enter into an Installment Agreement, the fee will rise from $105 (or $52 if you do direct debit or $43 if you’re low income) to $120. Again, interestingly, the actual cost reported by the agency to complete this process is $282 (or $122 for the direct debit option).
  • To restructure an Installment Agreement that’s in default will go from $45 to $50, while the agency reports the actual cost to them is $85.


How are these decisions being made? Clearly, there’s an intervening factor. What is it? The first clue is an acronym: OMB, which stands for a U.S. agency, the Office of Management and Budget, found under the White House Administration. This is where the decisions take place. But how do they move forward?


The OMB has stated that if an agency such as the IRS wants to charge fees for services, the agency has to give a report to the OMB of its own expenses for providing those services to the public. Apparently, the IRS complied with this requirement, resulting in the IRS fees outlined above. In general, it is recommended by the OMB that the fee charged should cover the expenses incurred, but the OMB also has the power to “Grant an Exception” which here seems to mean that: the IRS can charge that much less than it costs to provide the services, because the OMB will step in and direct the (taxpayer’s) money to subsidize, so to speak, the operation.


It might seem that, by the IRS charging a fee that seems like a money-losing proposition to the agency itself, the OMB contends that the public interest is served by its providing the background funding. The IRS, with the agreement and cooperation of the OMB, is striking a balance between recovering the agency’s costs and serving the public interest, which is, in this case, an opportunity to come into compliance with tax law under a fair fee schedule.


Those who proclaim and protest the unfairness of the raising of IRS fees in any manner might find interest in this, as might those who find it ironic that taxpayer money is used so generously to keep IRS fees low when compared to the actual costs of collecting taxes. The fee has to be something, so it needs to be increased, because, well everything increases; even though the increase in IRS fees doesn't even come close to offsetting the cost of processing an Offer in Compromise or Installment Agreement. And if a taxpayer can show that they make up to 250% of the poverty line, they can request this increased fee to be waived as well. Or request a hardship status that will stop all collection action, perhaps so long that the statute of limitations on collecting the tax debt will run out. 


If you have a tax issue you need assistance with, contact us to schedule a free, confidential, consultation.