Fresh Start Offer in Compromise

Despite late night advertising to the contrary, it is usually extremely difficult to get the Internal Revenue Service (IRS) to accept an Offer in Compromise (OIC) of your taxes. An OIC is essentially a negotiated settlement of your tax debt that allows you to pay less than the full amount of taxes owed.

According to the IRS website: www.irs.gov, The IRS is now using it’s Streamlined OIC process in the overall investigation of all offers and is more flexible in the financial analysis used to approve an offer. According to the IRS

The Streamlined Offer in Compromise process includes:

  • Fewer requests for additional financial information
  • If necessary, requests for additional information by phone, not by mail
  • Greater flexibility when considering your ability to pay

The changes to financial analysis add more flexibility to the OIC process including:

  • Greater flexibility in determining the equity in assets
  • Greater flexibility in determining the allowable living expenses
  • Reducing the amount of future income included in the offer
  • Decreased timeframe to complete the OIC payment process to two years”

The changes to the financial analysis has the potential to qualify more taxpayers for acceptance of their offers and changes how these offers are calculated. An OIC is not accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment plan. The IRS looks at the taxpayer’s income and assets to determine reasonable collection potential

Under the Fresh Start changes when calculating for 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) for offers paid in six to 24 months. The amount offered to the IRS in payment as part of an OIC must be paid in full in 24 months. There is not extended payment period as in other installment agreements.

The new OIC rules also consider the taxpayer’s student loan repayments and state and local delinquent tax liabilities. (Child support payments were always considered.). Expansion of the Allowable Living Expenses will be particularly helpful in that the miscellaneous allowance can include a greater consideration of such items as credit card payments.

Making an offer to settle your debt with the IRS is still a lengthy process and during the consideration of the offer the statute of limitations is “tolled.” This means that during the 2 years that the IRS normally took to consider your application and appeal the denial of the OIC, the clock stops ticking on the time the IRS can collect. Unless it keeps renewing the tax liens, the IRS has 10 years to collect on a debt, however, that 10 years is extended by two years because you submitted an OIC application.

NOTE: Even if you filed for bankruptcy and included the debt to the IRS in your bankruptcy proceedings, if the taxes owed to the IRS were not paid by the bankruptcy trustee you still owe the IRS.