The IRS understands that there are some taxpayers who could never pay their entire tax debt even over time. For this reason, it created the Offer in Compromise (OIC) Program. This unique IRS program has been almost impossible to qualify for due to strict IRS rules and guidelines. However, a Forbes article titled: IRS Relaxes Offer in Compromise Rules explains that recent initiatives are helping more struggling taxpayers than ever before.
Since 2012, the IRS has been much more willing to compromise with taxpayers with major tax debt issues. It created Fresh Start initiatives that greatly reduced its rules for an Offer in Compromise. As a result, it’s now accepting more offers than it has in the past.
Forbes statistics show that OIC % acceptances increased from 38% to 40% in 2014.
Reasonable Collection Potential
In an Offer in Compromise, the IRS weighs heavily a taxpayer’s income and assets. It is called reasonable collection potential. The IRS does not generally accept an OIC if it thinks it can collect the tax debt in full. However, with so many taxpayers struggling as a result of the recession, the Fresh Start Initiatives allowed changes to how tax challenged citizens report current and future income. Under Fresh Start, reasonable collection potential was reduced to one year of future income for offers paid in five or fewer installments (reduced from four years) and two years of future income for offers paid in six to 24 months.
Allowable Living Expense Standards
The IRS uses Allowable Living Expense standards to determine need. It has now adjusted these standards to truly reflect higher living costs in different parts of the country. According to Forbes, the agency has expanded the national standard miscellaneous allowance to include additional items such as the following:
- Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.
- The IRS granted allowances for repayment of student loans as part of an entire budget.
- They also allowed taxpayers to consider their payments of state and local delinquent taxes as part of an entire budget.
- The IRS also adjusted the Allowable Living Expense allowance category and amount to qualify more people. Bank accounts, property, and vehicle equity portions were also adjusted.
- Exclude $3,450 from the equity of motor vehicles used for commuting or for the health and welfare of the family.
An important point to note is that each state tax authority has its own rules for compromise that rarely conform to the IRS rules.
If you have tax debt troubles, speak to one of our certified New England tax resolution professionals to determine if you are a good candidate for the OIC program. We can also discuss other tax resolution options and negotiate with the IRS on your behalf to get you the best possible outcome. Contact us at (855) 479-2400.