IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start
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IR-2012-53, May 21, 2012
WASHINGTON — The Internal Revenue Service today announced another
expansion of its "Fresh Start" initiative by offering more flexible
terms to its Offer in Compromise (OIC) program that will enable some of
the most financially distressed taxpayers to clear up their tax problems
and in many cases more quickly than in the past.
"This phase of Fresh Start will assist some taxpayers who have faced the
most financial hardship in recent years," said IRS Commissioner Doug
Shulman. "It is part of our multiyear effort to help taxpayers who are
struggling to make ends meet."
Today’s announcement focuses on the financial analysis used to
determine which taxpayers qualify for an OIC. This announcement also
enables some taxpayers to resolve their tax problems in as little as two
years compared to four or five years in the past.
In certain circumstances, the changes announced today include:
- Revising the calculation for the taxpayer’s future income.
- Allowing taxpayers to repay their student loans.
- Allowing taxpayers to pay state and local delinquent taxes.
- Expanding the Allowable Living Expense allowance category and amount.
In general, an OIC is an agreement between a taxpayer and the IRS
that settles the taxpayer’s tax liabilities for less than the full
amount owed. An OIC is generally not accepted if the IRS believes the
liability can be paid in full as a lump sum or a through payment
agreement. The IRS looks at the taxpayer’s income and assets to make a
determination of the taxpayer’s reasonable collection potential. OICs
are subject to acceptance on legal requirements.
The IRS recognizes that many taxpayers are still struggling to pay
their bills so the agency has been working to put in place common-sense
changes to the OIC program to more closely reflect real-world
situations.
When the IRS calculates a taxpayer’s reasonable collection potential,
it will now look at only one year of future income for offers paid in
five or fewer months, down from four years, and two years of future
income for offers paid in six to 24 months, down from five years. All
offers must be fully paid within 24 months of the date the offer is
accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.
Other changes to the program include narrowed parameters and
clarification of when a dissipated asset will be included in the
calculation of reasonable collection potential. In addition, equity in
income producing assets generally will not be included in the
calculation of reasonable collection potential for on-going businesses.
Allowable Living Expenses
The Allowable Living Expense standards are used in cases requiring
financial analysis to determine a taxpayer’s ability to pay. The
standard allowances provide consistency and fairness in collection
determinations by incorporating average expenditures for basic
necessities for citizens in similar geographic areas. These standards
are used when evaluating installment agreement and offer in compromise
requests.
The National Standard miscellaneous allowance has been expanded to
include additional items. Taxpayers can use the miscellaneous allowance
for expenses such as credit card payments and bank fees and charges.
Guidance has also been clarified to allow payments for loans
guaranteed by the federal government for the taxpayer's post-high school
education. In addition, payments for delinquent state and local taxes
may be allowed based on percentage basis of tax owed to the state and
IRS.
This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.
In 2008, IRS announced lien relief for taxpayers trying to refinance
or sell a home. The IRS added new flexibility for taxpayers facing
payment or collection problems in 2009. The IRS made changes to lien
policies in 2011 and expanded the threshold for small businesses to
resolve tax issues through installment agreements. And, earlier this
year, the IRS increased the threshold for a streamlined installment
agreement allowing individual taxpayers to set up an installment
agreement without providing a significant amount of financial
information. |
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