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July 26, 2011

IRS Moves Forward With Fresh Start Initiative

Earlier this year, the IRS announced their fresh start initiative, which has been billed as their latest attempt to help struggling taxpayers. These new policies and programs are designed to help individuals and small businesses meet their tax obligations, settle back tax deficiencies and avoid tax liens. The changes associated with this program include: increasing the dollar threshold for when liens are issued; easing and simplifying the process for taxpayers to obtain lien withdrawals once their tax bills are settled; withdrawing liens upon entering a direct debit installment agreement; creating easier access to installment agreements for struggling small businesses; and expanding and streamlining the offer in compromise (OIC) program to cover more taxpayers.

The changes in regards to liens certainly seem like a step in the right direction. Many taxpayers are familiar with the unfortunate consequences of a tax lien, which can include a negative effect on credit ratings, increased borrowing costs, and difficulty in selling the asset upon which the lien is placed. Impacts such as these seem counter-productive if the goal is to get the taxpayer on the right side of the balance sheet and raising the lien threshold should mean that thousands of taxpayers will no longer be burdened with these consequences as they strive to buoy their financial situation. Furthermore, making it easier to withdraw a tax lien rightfully rewards the taxpayer for settling their debt. Finally, withdrawing liens when the taxpayer has entered into a direct debit installment agreement is both taxpayer friendly and fiscally sound. The individual gets a benefit for taking proactive steps to ensure that their tax debt will be paid and the government cuts down on the fees and expenses associated with the burden of mailing a constant stream of monthly reminders.

Easing the restrictions on small businesses looking to obtain a streamlined installment agreement is also a positive development. Formerly, only small businesses with less than $10,000 in liabilities could receive these agreements. However, the IRS has now raised that limit to $25,000. These agreements are available for small businesses that file either as an individual or as a business entity and those businesses with an amount due that is greater than $25.000 will be eligible for a streamlined installment agreement once they pay down their balance.

The modifications to the OIC program are certainly intriguing. An OIC is an agreement between the taxpayer and the IRS that settles the taxpayer’s liabilities for an amount that is less than the full balance owed. OICs are subject to IRS acceptance based on certain legal requirements and an offer generally will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. In making its determination, the IRS looks at the taxpayer’s income and assets to form an opinion as to the taxpayer’s ability to pay. Under the fresh start initiative, the IRS is now allowing taxpayers with annual incomes up to $100,000 to participate. In addition, potential participants can now have a tax liability of up to $50,000, doubling the previous limit of $25,000 or less. While all of this is certainly welcome news, OICs have been difficult for taxpayers to obtain in the past, and it will be interesting to see if the OIC process truly gets any simpler.

If you are here seeking resources to learn more about the fresh start initiative, the IRS has informational videos on taxpayer assistance centers here and direct debit installment agreements here. Additionally, the IRS has announced plans to hold special Saturday hours for their assistance centers on July 16 at these locations.

If you have a current tax issue and are looking to have a lien withdrawn, set up an installment agreement, propose an offer in compromise, or seek another form of settlement, it helps to have an experienced tax attorney to back you up. You may only get one shot to convince the IRS that your circumstances require acceptance of your proposal, especially in situations like an OIC where the IRS is being asked to accept less than the full amount owed. Everyone’s situation is different and the arrangement that a taxpayer reaches with the IRS should address their individual issues. Contact an Attorney in Jacksonville to discuss how we can help establish an arrangement with the IRS that is tailored to your personal needs.