IRS Eases Up on Offer in Compromise Requirements

The IRS has recently announced changes to its “Fresh Start” initiative that are aimed at helping struggling taxpayers. Part of the “Fresh Start” initiative, the Offer in Compromise (OIC) program was designed to alleviate the difficulties facing some financially distressed taxpayers by providing for an agreement between a taxpayer and the IRS to settle tax liabilities for less than the full amount owed if the taxpayer meets certain conditions.

Recent revisions to the OIC program focus on the financial analysis used to determine taxpayer OIC qualification. In order to decide if a taxpayer qualifies for an OIC, the IRS analyses the taxpayer’s income and assets to determine reasonable collection potential. The announced changes will decrease the number of years of future income the IRS looks at in making its determination. The IRS now will 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 for offers paid in six to twenty-four months (down from five years).

Another major change regards the calculation of Allowable Living Standards, which aid in financial analysis to determine a taxpayer’s ability to pay. The standards, which incorporate average expenditures for basic necessities for citizens in similar geographic areas, have been expanded to include additional items. Taxpayers can now use these miscellaneous allowances for credit card payments and bank fees and charges. Additional guidance has also been provided for payment of student loans and delinquent state and local taxes.