IRS expands Fresh Start

The Internal Revenue Service is again expanding its Fresh Start initiative by offering more flexible terms to its Offer in Compromise program that will enable some of the most financially distressed taxpayers clear up their tax problems — in many cases more quickly than in the past.

"This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

The financial analysis used to determine which taxpayers qualify for an Offer in Compromise are being changed in some circumstances.

In certain circumstances, the changes include:

¿ Revising the calculation for the taxpayer’s future income.

¿ 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 changes also include enabling some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In general, an Offer in Compromise is an agreement between a taxpayer and the IRS that settles tax liabilities for less than the full amount owed. The deals are generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS reviews the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. These arrangements are subject to acceptance on legal requirements.

"The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the program to more closely reflect real-world situations," the Service noted.

When the IRS calculates a taxpayer’s reasonable 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 date the offer is accepted.