Posts Tagged ‘Offer-in-Compromise’

More Flexible Offer-in-Compromise Terms Help Taxpayers Make a Fresh Start

Monday, July 9th, 2012


The IRS has expanded its “Fresh Start” initiative by offering more flexible terms to its Offer-in-Compromise Program. These newest rules enable some financially distressed taxpayers to clear up their tax problems even quicker.

An offer-in-compromise (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 through a payment agreement. The IRS looks at the taxpayer’s income and assets to determine the reasonable collection potential.

This expansion of the “Fresh Start” initiative focuses on the financial analysis used to determine which taxpayers qualify for an OIC.

Here are the OIC changes:

  • Revising the calculation for a taxpayer’s future income. The IRS will now look at only one year (instead of four years) of future income for offers paid in five or fewer months; and two years (instead of five years) of future income for offers paid in six to 24 months. All OICs      must be paid in full within 24 months of the date the offer is accepted.
  • Allowing taxpayers to repay their student loans Minimum payments on student loans guaranteed by the federal government will be      allowed for the taxpayer’s post-high school education. Proof of payment must be provided.
  • Allowing taxpayers to pay state and local delinquent taxes When a taxpayer owes delinquent federal and state or local taxes, and does not have the ability to fully pay the liabilities, monthly payments to state taxing authorities may be allowed in certain circumstances.
  • Expanding the Allowable Living Expense allowance. Standard allowances incorporate average expenses 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. Taxpayers can use the allowance to cover expenses such as credit card payments and bank fees and charges.

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Offer-in-Compromise Terms Made More Flexible

Wednesday, June 13th, 2012

The IRS has 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 the IRS Commissioner Doug Shulman. “It is part of our multiyear effort to help taxpayers who are struggling to make ends meet.”

This latest announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. The announcement also enables some taxpayers to resolve their tax problems in as little as two years, as compared to four or five years in the past.

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 local delinquent taxes.
-Expanding the Allowable Living Expense allowance category and amount.

In general, an OIC is an agreement between the 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 of through a 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 offers paid in six to 24 months, down from five years. All the 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, equality in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

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