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May 29, 2012IRS Announces Changes To Offer In Compromise Programs As Part Of Fresh Start Initiative
In the latest installment of the fresh start initiative, a program designed to assist taxpayers with settling their tax bills, the IRS has announced that it will be allowing increased flexibility to those applying for the Offer in Compromise (OIC) program. If a taxpayer has a sizable tax debt, minimum assets and income prospects, and can fulfill the right circumstances, the IRS may accept an OIC to settle unpaid tax accounts for less than the full balance due. This applies to all taxes, including any interest, penalties, or other additional amounts arising under the Internal Revenue Code.
Not everyone qualifies for an OIC. The OIC program is an option only for those taxpayers who are unable to pay their tax account in a lump sum or through an installment agreement and who have exhausted their search for other payment arrangements. Thus, the IRS applies very stringent rules to determine who qualifies for the OIC. These rules have to do with the taxpayer’s income and assets that determine the taxpayer’s reasonable collection potential.
The changes announced include:
- Revising the calculation for the taxpayer’s future income – 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.
- 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.
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.
“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.”