Do You Have Trouble Paying Back Taxes? The IRS Cares! No, Really. But to a Point.

As CPAs, every year we acquire clients who need help negotiating with the IRS regarding their back taxes.  This apparently seemed to be such a problem, that the IRS has actually made it a little easier to satisfy the debt.  It’s called the “Fresh Start” which offers more flexible terms in paying your taxes using its Offer-in-Compromise Program. I gathered this information from the IRS Tax Tips–July 9, 2012.

An offer-in-compromise (OIC) is an agreement between a taxpayer and the IRS
that settles the taxpayer’s tax liabilities for less than the full amount owed.
An OIC is generally not accepted if the IRS believes the tax liability can be paid
in full as a lump sum or through a payment agreement. The IRS looks at the
taxpayer’s income and assets to determine the reasonable tax collection potential.

This expansion of the “Fresh Start” initiative focuses on the financial
analysis used to determine which taxpayers qualify for an OIC.

Here are the OIC changes:

• Revising the calculation for a taxpayer’s 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 years) of future income for offers paid in six to 24 months. All OICs
  must be paid in full within 24 months of the date the offer is accepted.
• Allowing taxpayers to repay their student loans Minimum
  payments on student loans guaranteed by the federal government will be
  allowed for the taxpayer’s post-high school education. Proof of payment must
  be provided.
• When a taxpayer owes delinquent federal and state or local taxes,
  and does not have the ability to fully pay the liabilities, monthly
  payments to state taxing authorities may be allowed in certain
  circumstances.
• Standard allowances incorporate average expenses for basic necessities for
  citizens in similar geographic areas. These standards are used when
  evaluating installment agreement and offer-in-compromise requests. The
  National Standard miscellaneous allowance has been expanded. Taxpayers can
  use the allowance to cover expenses such as credit card payments and bank
  fees and charges.

One thing to remember is once you start the payment plan, you cannot miss a month.  To do so could result in unpleasent consequences.  You must keep the communication open with the IRS.  Discuss this with a tax advisor before taking any action since all situations are different.

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