Vince Nardone: Tax and Controversy

The Internal Revenue Service has Announced Relaxed Guidelines for Taxpayers Related to the Offer in Compromise Program

The Internal Revenue Service announced more flexible terms to its offer in compromise program that is intended to allow a greater number of distressed taxpayers to resolved outstanding tax liabilities. As tax attorneys in Columbus, Ohio, we at Nardone Law Group, LLC see this announcement as a game changer when it comes to the offer in compromise program. Many taxpayers struggle to actually qualify because of the future income requirements and the restrictions on allowable expenses. Well, those rules have now changed, and the Internal Revenue Service should be applauded.

Background

In general, an offer in compromise is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed. An offer in compromise is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through an installment agreement. The IRS looks at the taxpayer's income and assets to make a determination of the taxpayer's reasonable collection potential.

Changes

The changes announced include:

1.  Revising the calculation for the taxpayer's future income.

2.  Allowing taxpayers to repay their student loans.

3.  Allowing taxpayers to pay state and local delinquent taxes.

4.  Expanding the allowable living expense allowance category and amount.

When the IRS calculates a taxpayer's reasoanble collection potential, it will now 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 24 months, down from five years. All offers must be fully paid within 24 months of the dates the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, have been revised to reflect these changes, which you can obtain by clicking on the appropriate link above.

The IRS has also changed some of the allowable living expense standards in cases requiring financial analysis to determine a taxpayer's ability to pay. Here is a summary:

1.  Taxpayers may now use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

2.  Guidance was clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education.

3.  Payments for delinquent state and local taxes may be allowed based on a percentage basis of tax owed to the state and IRS.

4.  Cash will no longer be considered an asset under certain circumstances if used to pay for the taxpayer's monthly allowable living expenses.

5.  Allowable transportation expenses for older vehicles were increased.

The IRS issued a Memorandum for Directors, Collection Area Operations and the revised Internal Revenue Manual section under IRM 5.8.5, which also provides additional guidance. Click on the appropriate links to obtain those documents.

We have also looked at the various sections of the Internal Revenue Manual to date, which is on the IRS website. But, the actual Internal Revenue Manual has not been updated as of May 31, 2012.

All in all, this is a great result for both the IRS and taxpayers. We look forward to working with the IRS and our clients in resolving their tax liabilities.

Nardone Law Group represents businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions. If you are struggling with tax liabilities, you should contact an experienced tax attorney today. Nardone Law Group, LLC’s tax lawyers and professionals have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer in compromise. Contact us today for a consultation to discuss your case.

REMINDER: Use Tax and General Tax Amnesty Programs

Hello everyone.  As the tax attorneys at Nardone Law Group, LLC have previously communicated in our September 26, 2011 blog entry Ohio Use Tax Amnesty and Other Voluntary Disclosure Options, the Ohio Department of Taxation issued an Information Release providing guidance on the Consumer's Use Tax Amnesty Program that runs from October 1, 2011 through May 1, 2013. The Tax Commissioner will waive all unassessed Use Tax liability due for any periods prior to January 1, 2009, and Consumer's Use Tax paid under the Amnesty is not subject to interest, or civil or criminal penalties. But, taxpayers who are registered for Ohio Use Tax as of June 1, 2011, are required to pay interest on any under-reported or unreported Consumer's Use Tax.

The Ohio Department of Taxation also issued an Information Release on the General Tax Amnesty. The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid.  The General Tax Amnesty program is open from May 1, 2012 to June 15, 2012.  The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:

• The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.
• Any penalties on delinquent taxes paid under this program are fully abated.
• Participants cannot be criminally prosecuted.
• No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty Program.

To complicate things for Ohio taxpayers, ODT also has the Voluntary Disclosure Program, which is an ongoing program, and is available for various tax years for which a taxpayer may have a liability. Although the benefits and terms may vary depending on the type of tax, the general benefits and terms include:

• The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.
• The Tax Commissioner is precluded from assessing the taxpayer, or from requiring the taxpayer to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by ODT.
• The Tax Commissioner will waive all penalties associated with the years covered by the agreement.

Prior to availing yourself of either: (i) the Use Tax Amnesty, (ii) the General Tax Amnesty, or (iii) the Voluntary Disclosure Program, you must consider the benefits of each, and also determined the potential unattended consequences of making the disclosure.  For more information, please also visit our recent article on the Ohio Tax Amnesty Programs. Also consider reviewing the Ohio Department of Taxation's discussion on each of these options.

The tax attorneys at Nardone Law Group represent businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions.  If you are dealing with a local, federal or state tax issue, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the Ohio Department of Taxation and the IRS. We will thoroughly review your case to determine what options and alternatives are available, including the programs discussed in this article. Contact us today for a consultation.