The Internal Revenue Service reminded taxpayers and tax preparers Monday that it is now offering more flexible terms for its offer-in-compromise program as part of its expanded Fresh Start initiative.

The newest rules enable some financially distressed taxpayers to clear up their tax problems even quicker (see IRS Makes Offer in Compromise Program More Flexible). An offer-in-compromise 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.

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

Among the OIC changes are 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.

The IRS is also making it easier for 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.

In addition, the IRS is making it easier for taxpayers to pay any delinquent state and local 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.

The IRS also noted that it is 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.

More information on the Fresh Start initiative can be found at IRS.gov.

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