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. As
always we are available to help. For no obligation free consultation contact us
today!
ABA Tax
Accounting
Amare Berhie, Enrolled Agent
Abatax81@gmail.com
Direct
612-282-3200
Toll
free 866-936-0430
