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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 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.
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