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Letter from Donald B. Marron, Acting Director Congressional Budget Office to Max Baucus regarding cost estimate for the conference agreement on H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005 1 (May 2006)

handle is hein.congrec/cbo10325 and id is 1 raw text is: OCONGRESSIONAL BUDGET OFFICE U.S. Congress Washington, DC 20515 May 25, 2006 Honorable Max Baucus Ranking Democratic Member Committee on Finance United States Senate Washington, DC 20510 Dear Senator: I am pleased to respond to your letter of May 18, which poses questions regarding CBO's cost estimate for the conference agreement on H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005. Specifically, the letter asks why CBO concluded that there was no outlay effect from section 509 (which involves partial payments required with submission of offers-in-compromise) and what experts CBO consulted in arriving at its conclusion. Under present procedures, offers-in-compromise from taxpayers must be accompanied by a $150 filing fee. That payment is in addition to the actual settlement that may be agreed upon, and it is not refundable in the event the offer is rejected. Nonetheless, in order to delay collection of liability, a number of taxpayers make offers-in-compromise even though they expect them to be rejected. More important, a significant fraction of offers fail to generate fees because they are returned as unprocessable. The income that is generated from the fees is treated as negative outlays in the budget, and the Internal Revenue Service is allowed to spend those sums without appropriation action. Section 509 makes two changes. First, it requires taxpayers making an offer-in- compromise to make a partial payment of their tax liability in addition to paying the existing filing fee. Second, the section provides for the filing fee to be credited toward the final settlement. Because the partial payment of tax liability is also nonrefundable, the first change could result in fewer fee-generating offers intended primarily to delay collection. However, the crediting of the fee reduces the cost of making serious offers and could result in more offers from taxpayers who might otherwise have been reluctant to make them. Both of those effects are small; the first because the reduction in offers

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