Tax Relief Blog
If you haven’t paid back taxes, penalties, or interest – you may be able to work with us to apply for an Offer in Compromise (OIC) with the IRS in order to get compliant, alleviate your issues with the IRS collectors, and move forward. An OIC is an agreement to settle your tax liabilities for less than the full amount owed. The good news is that it may be easier than you think. In the spring of 2012 the IRS modified their offer in compromise guidelines, in an effort to work with struggling taxpayers, making it much more favorable to the taxpayer.
The initiative, dubbed “Fresh Start,” was instituted to apply common sense to the current program. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential; and the agreement is subject to acceptance on legal requirements. Points to note on the changes include:
• An Offer in Compromise is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through installment agreement
• The IRS now calculates a taxpayer’s reasonable collection potential and will now look at only one year of future income for offers paid in five or fewer months (down from four years)
• It will look at two years of future income for offers paid in six to 24 months (down from five years)
• All offers must be fully paid within 24 months of the date the offer is accepted
In certain circumstances, the changes also allow for:
• Allowing taxpayers to repay their student loans
• Allowing taxpayers to pay state and local delinquent taxes
• Expanding the Allowable Living Expense allowance category and amount
The process is fairly simple and straightforward. The three reasons for filing for an Offer in Compromise allow you to settle your tax liabilities for less than the total amount owed. One of these tax settlement programs may be the tax resolution or relief you are looking for. They each have unique offer requirements and an offer can be entered into after you establish a payment plan.
• Offer In Compromise – Doubt As To Liability
The first reason is doubt as to liability (there is doubt as to whether you owe the taxes and feel that the IRS will have difficulty proving it). We can discuss the requirements here, in order to help you with any questions regarding proving your liability.
• Offer In Compromise – Doubt As To Ability To Pay
The second reason is doubt as to your ability to pay the taxes owed given your current circumstances.
• Offer In Compromise – Effective Tax Administration
There is a new third special case where taking your assets will create an undue hardship. Most cases by far are filed based on doubt as to ability to pay.
In the new program, there is a section outlining the guidelines for allowable living. The IRS uses a formula taking your income and your assets into account.
Allowable living expenses are figured out through the following process:
1. Your income, less allowable expenses (we use the IRS allowable expense chart to determine this). Your result is the amount they feel you can pay each month after paying your “necessary living expenses”.
2. Multiply this number by fifty.
3. Next add it to the equity of your assets (that is how much you pocket for yourself if you sold the item at a bargain sale). The IRS examines the equity in your house, car, retirement plan, rental property, stocks, etc.
4. The result is the total amount the IRS expects from you now in a lump sum, or over a two year time period – with interest added.
This calculation is subject to the IRS’s opinion of the value of your assets, and the allowances they will give you when computing how much money you have available to pay monthly.
The good news is that a knowledgeable and experienced professional in this area can convince the offer division to use values more in the taxpayer’s favor. Your Offer in Compromise can stop collection action once it is assigned to an Offer Specialist; we can get this done quickly. And even if you’ve had a previous offers turned down, we can often get IRS offers accepted if you’re experiencing a financial hardship.
Once you get an OIC, it is important to ensure you keep up your end of the bargain. You must follow all the rules about timely filing and paying your taxes, according to the IRS “special” rules. Your offer payments must also be made timely and for the correct amount.
The first step, however, is to assess your situation and see whether or not you may qualify for the program. We provide you with a free consultation to discuss whether or not you are eligible.
Our firm has an “A+” rating with the Better Business Bureau and all cases are personally handled by the principle of the firm, Mike Habib, EA. Mike is an IRS licensed enrolled agent (EA) and can help you Get Tax Relief & IRS Debt Relief by solving your IRS problems.
To discuss your situation, please contact our tax firm for a free tax consultation at 877-788-2937.
