IRS Makes Offer in Compromise Program More Flexible

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The Internal Revenue Service today announced another expansion of its"Fresh Start" initiative by offering more flexible terms to its Offerin Compromise (OIC) program that will enable some of the most financiallydistressed taxpayers to clear up their tax problems and in many cases morequickly than in the past.
"Thisphase of Fresh Start will assist some taxpayers who have faced the mostfinancial hardship in recent years," said IRS Commissioner Doug Shulman."It is part of our multiyear effort to help taxpayers who are strugglingto make ends meet."

Today’s announcement focuses on the financial analysis used to determine whichtaxpayers qualify for an OIC. This announcement also enables some taxpayers toresolve their tax problems in as little as two years compared to four or fiveyears in the past.
Incertain 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 andamount.Ingeneral, an OIC is an agreement between a taxpayer and the IRS that settles thetaxpayer’s tax liabilities for less than the full amount owed. An OIC isgenerally not accepted if the IRS believes the liability can be paid in full asa lump sum or a through payment agreement. The IRS looks at the taxpayer’sincome and assets to make a determination of the taxpayer’s reasonablecollection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their billsso the agency has been working to put in place common-sense changes to the OICprogram to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it willnow look at only one year of future income for offers paid in five or fewermonths, down from four years, and two years of future income for offers paid insix to 24 months, down from five years. All offers must be fully paid within 24months of the date the offer is accepted. The Form656-B,  Offer in Compromise Booklet, and Form656, Offer in Compromise, has been revised to reflect thechanges.

Other changes to the program include narrowed parameters and clarification ofwhen a dissipated asset will be included in the calculation of reasonablecollection potential. In addition, equity in income producing assets generallywill not be included in the calculation of reasonable collection potential foron-going businesses.
Allowable Living Expenses
The Allowable Living Expense standards are used in cases requiring financialanalysis to determine a taxpayer’s ability to pay. The standard allowancesprovide consistency and fairness in collection determinations by incorporatingaverage expenditures for basic necessities for citizens in similar geographicareas. These standards are used when evaluating installment agreement and offerin compromise requests.

The National Standard miscellaneous allowance has been expanded to includeadditional items. Taxpayers can use the miscellaneous allowance for expensessuch as credit card payments and bank fees and charges.

Guidance has also been clarified to allow payments for loans guaranteed by thefederal government for the taxpayer's post-high school education. In addition,payments for delinquent state and local taxes may be allowed based onpercentage basis of tax owed to the state and IRS.

This is another in a series of steps to help struggling taxpayers under theFresh Start initiative.

In 2008, IRS announced lien relief for taxpayers trying to refinance or sell ahome. The IRS added new flexibility for taxpayers facing payment or collectionproblems in 2009. The IRS made changes to lien policies in 2011 and expanded thethreshold for small businesses to resolve tax issues through installmentagreements. And, earlier this year, the IRS increased the threshold for astreamlined installment agreement allowing individual taxpayers to set up aninstallment agreement without providing a significant amount of financialinformation. Asalways we are available to help. For no obligation free consultation contact ustoday!ABA TaxAccountingAmare Berhie, Enrolled AgentCertified QuickBooks ProAdvisorAbatax81@gmail.comDirect612-282-3200Tollfree 866-936-0430http://abatax81.blogspot.comwww.abataxaccounting.com