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Record Acceptance Rates Make This The Best Time in History to Settle IRS Debt For Less Than The Full Amount Owed

New IRS Offer in Compromise Rules

Does it seem like your tax problem will never end?  Are you having trouble making ends meet as it is?  Are you scared that you will never put a dent in your tax debts by paying the IRS a trickle of monthly payments out of the little you are taking home at the end of each month?  The Offer in Compromise (“OIC”) may be a tool that will allow you to put your IRS problems behind you.

 

Taxpayers Can Eliminate Back Taxes, Interest, and Penalties at a Discount With an Offer in Compromise.

On May 21, 2012, the Internal Revenue Service announced that as part of its “Fresh Start” initiatve, it would offer more flexible Offer in Compromise (“OIC”) terms.  These new rules have dramatically improved the terms the IRS will accept to settle delinquent taxes and significantly increased the acceptance rate for OICs.

 

An Offer in Compromise is a way for a taxpayer to settle their tax debt for less than the full amount owed, paid out in a lump sum or over a short period of time.

Under the new rules, delinquent taxpayers, struggling financially, have the best opportunity in history to clear up their tax problems and get a fresh start.  The changes focus on how the IRS looks at a taxpayer’s finances.  The new rules take a more realistic view of what you have available to pay the IRS.

 

Is an OIC Right For You?

An Offer in Compromise (“OIC”) is good for taxpayers with few assets or who primarily have assets with little equity.  For example, if you owe $50,000 to the IRS, but you have $50,000 of equity in your home, you probably do not qualify for an OIC, because you can full pay your tax liability with your available equity. 

On the other hand, if you owe $50,000, but have no assets, and your disposable income is only $500/mo using IRS calculation methods, you could theoretically settle for a lump sum payment of $6,000. 

Why?  Because, the IRS is currently prioritizing getting revenue in now and getting debts cleared from the delinquent taxpayer rolls.  This opportunity will probably be available for a few years, but is unlikely to last forever – so, now is the time to take advantage of the new, more flexible OIC rules.

 

What If I Can Pay My Full Liability With an Installment Agreement?

If you don’t have any equity in assets, then all the IRS can look to is your disposable take-home income for payment on your tax debts.  Using the same example, if you owe $50,000, and you make $500/mo, and your tax assessment is 5 years old, the IRS has 5 more years to collect from you.  The IRS could expect to get $30,000 in monthly payments during that time.  Historically, the IRS generally would not accept an offer from such a taxpayer because the debt could be paid in full over time.  This is what makes the current program so attractive.

The “Fresh Start” initiative literally allows taxpayers who can otherwise pay their tax debt over a series of years to come back into full compliance and wipe out their tax debt, on the condition that they remain current on a go-forward basis.

IRS Commissioner Doug Shulman said of the new OIC standards, "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."  The new OIC program is a part of a series of common-sense initiatives to more closely reflect real world situations in the current economic environment.

 

The IRS is now taking a more realistic view of a taxpayer’s available income when deciding what Offer amount they will accept.

Whereas, historically, the IRS did not realistically evaluate a taxpayer’s ability to pay the IRS, because items like student loans and delinquent state taxes were ignored, the IRS is now making allowance for these items.  Whereas, historically, the IRS wanted 4 years of a taxpayer’s disposable income to settle up, they are now willing to accept 1 years worth of a taxpayer’s disposable income.  For all of these reasons, there has never been a better time to try to use an OIC to settle your tax debts.

 

New Rules

  • Calculating a taxpayer’s future income based on 12 rather than 48 months;
  • Allowing student loans as a deduction against disposable income;
  • Allowing delinquent state and local tax as a deduction against disposable income;
  • Narrowing the items that will be considered “dissipated assets”; and
  • Broadening the Allowable Living Expenses category of deductions.

 

The Truth About Offers in Compromise

Radio and TV ads talk about settling your tax debts for a fraction of what is owed or “pennies on the dollar.”  These ads are false and misleading.  The IRS requires that you pay what you can toward what you owe – it is called your “Reasonable Collection Potential” – and it is what it sounds like, it is the amount you can reasonably afford to pay.  For all but the truly destitute, you will be required to make a sizable but fair payment to settle your tax debts.

 

Offers in Compromise Are One of the Most Underutilized Ways to Solve Your Tax Problems

In 2013, about 4 million taxpayers (of 16 million who owe back taxes) resolved their tax problem through an Installment Agreement, but only 31,000 had an accepted Offer in Compromise.

 

Good News - More Offers in Compromise Are Being Accepted Than Ever Before

In 2013, taxpayers submitted 74,000 Offers in Compromise with a 42% acceptance rate! 

Historically, the acceptance rate was less than 1 in 5 (for example, 10 years ago in 2004 it was only 16%), and today almost half of all offers are accepted.  This is due to the “Fresh Start” initiative and cannot be expected to last forever.

 

Too Few Taxpayers Explore The Option of Filing an Offer in Compromise

Even with the favorable new terms and an all-time record acceptance rate, few taxpayers submit an Offer in Compromise.  How few?  Less than 1% of delinquent taxpayers try to resolve their case through an Offer in Compromise.

 

Tax Probation – A Trap for the Unwary

When the IRS accepts your Offer in Compromise (“OIC”), you must  agree to the following conditions – and if these are violated, the original balance owed is restored:

  • Timely file your tax returns and pay the taxes due for five (5) years; and
  • Let the IRS keep any tax refunds, payments or credits applied to your account prior to submitting your offer and for the tax year in which your offer is submitted.

Being on tax probation can be tough for a taxpayer who owns their own business or works in commissioned sales, but it is the price to be paid for getting a “fresh start” with your tax obligations – and, in the grand scheme of things, it is a small

 

FREQUENTLY ASKED QUESTIONS

 

How Long Does the Offer in Compromise (“OIC”) Process Take?

The OIC Process generall takes between 1-2 years.

  • (1-4 months) – Preparing the Offer in Compromise (“OIC”) forms and getting all back-up documentation together.
  • (6-18 months) IRS Processing Of Your Offer in Compromise (“OIC”).
  • (1-3 months) – Finalizing the Offer and Making Payment Arrangements.

 

What is the Fee For Filing an Offer in Compromise (“OIC”)?

The IRS charges a $150 processing fee for the submission of Offers in Compromise.

 

Call Fazzio Law Offices Today at (201) 529-8024 to set up a Free Consultation and to determine whether an Offer in Compromise is right for you.

 

Read More:

http://www.irs.gov/uac/IRS-Announces-More-Flexible-Offer-in-Compromise-Terms-to-Help-a-Greater-Number-of-Struggling-Taxpayers-Make-a-Fresh-Start

http://www.journalofaccountancy.com/Issues/2012/Oct/20125367.htm