Monday, August 27, 2012

The New Truth about an Offer in Compromise | Bellevue Tax Lawyer

In my previous post about submitting an offer-in-compromise, I stated that it was difficult, at best, for a taxpayer to satisfy the terms required to make an offer-in-compromise.  However, the recently updated IRS offer-in-compromise guidelines substantially improves the likelihood that a middle class tax payer will qualify for an offer and that the offer will be accepted.  As discussed in detail below, the biggest changes are related to the reduction in the number of years used to determine available future income, and the ability to include student loan payments.  

Perhaps in recognition of the slow-to-recover economy, the IRS has announced more flexible offer-in-compromise terms for taxpayers who are struggling with other expenses, such as student loan payments and state and local tax delinquencies.  These changes constitute another component of Fresh Start, an IRS initiative that also includes an expansion of the payment window for installment arrangements and penalty relief for unemployed earners and self-employed earners who saw a substantial reduction in earnings.  According to IRS Commissioner Doug Shulman, the changes to this program were intended to “help the middle class more than ever before.”

For taxpayers who have remained current with all tax filings and payments and have yet to initiate bankruptcy proceedings, the revised OIC terms constitute a useful option for achieving long-term financial stability.  The previous program, gave false hope to many taxpayers but offered little relief.  Now, however, settlements for substantially less than what is owed, and settlement acceptance rates—previously in the range of 30% of all submitted offers--are likely to reach 40% or higher. 

The prior OIC requirements were unduly difficult for many taxpayers to meet.  Under the old OIC terms, the IRS looked at five years of future income when assessing offers to pay over the course of six to 24 months, and four years of future income for offers to pay in five or fewer months; the revised OIC terms limit this to two and one, respectively.  Other payments to government entities, such as student loan payments and payments to state and local tax collectors, will be considered when weighing the merits of OIC acceptance.  Equity in income-producing assets will generally not be included in the calculation of collection potential for ongoing businesses.

With OIC revisions in place for the upcoming tax season, individuals who are seeking to settle their outstanding liabilities to the IRS may wish to consult with tax professionals about this program.  The Law Office of Aaron P. Richter, a Washington law firm that specializes in tax controversy and preparation, offers a free phone consultation (425-298-3207) to taxpayers who are interested in learning about how the changes to the OIC program will affect their ability to restructure or discharge their debts.   

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional. 

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