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.
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.
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.