There may be a light at the end of the metaphorical IRS tunnel for some of the most financially distressed taxpayers currently seeking an end to their tax problems. The days of garnishments, tax liens and levies may be over for those who qualify under changes made to the Offer in Compromise Program as part of the “Fresh Start Initiative,” an initiative that has enabled several changes in favor of the taxpayer since 2008. With this timely revision to the program, the IRS acknowledges that many are struggling to resolve their tax issues while also dealing with a difficult financial climate, saying that it is putting into place “common sense changes to the OIC program to more closely reflect real-world situations.”
According to the IRS website, there are two main areas of the OIC that are affected by this revision: the financial analysis used to determine which taxpayers qualify for the program, and the amount of time it takes to resolve the tax issue. It was once common for a resolution to come after 4 or 5 years; however, the new streamlined program allows for a resolution in as little as two years.
In certain circumstances, the changes include:
- Revising the calculation for the taxpayer’s future income
- Allowing taxpayers to repay their student loans
- Allowing taxpayers to pay state and delinquent local taxes.
- Expanding the Allowable Living Expense allowance category and amount.
The Offer in Compromise, an agreement between the IRS and the taxpayer that settles the taxpayer’s liabilities for less than the full amount owed, has been more challenging to obtain in the past. If the IRS believes that the liability can be paid in full through a payment agreement or all at once as a lump sum, an OIC is generally not accepted. The determination of eligibility for an OIC comes after a financial analysis, the process of calculating the taxpayer’s reasonable collection potential. It is this analysis that is receiving the brunt of the changes in this phase of revisions.
According to the revised OIC program, the IRS will now only look at one year of future income for offers paid in five months or less, as opposed to four years, and two years of future income in offers paid in six to twelve months, as opposed to five years.
With the revised financial analysis, along with the expansion of the Allowed Living Expense and the concessions made for student loans and local taxes, the IRS is working to move struggling taxpayers toward a fresh start.
For help navigating the revised Offer in Compromise program, as well as for assistance in finding the best solution for you, please contact your experienced IRS tax attorney.
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