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New Internal Revenue Service Liberalized Offer in Compromise Guidelines
The IRS has expanded its "Fresh Start" initiative for the Offer in Compromise (OIC) program that provides more flexible terms for taxpayers who cannot afford to pay their tax liability to the IRS.
The financial forms for OICs have been revised accordingly to reflect the liberalized standards:
1. Form 433-A (Rev. May 2012) Collection Information Statement for Wage Earners and Self-employed Individuals.
2. Form 433-B (OIC) (Rev. May 2012) Collection Information Statement for Businesses.
3. Form 656 (Rev. May 2012) Offer in Compromise
4. Form 656-L (Rev. 2-2012) Offer in Compromise (Doubt as to Liability)
The changes announced today 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.
An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.
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. The Form 6656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise (http://www.irstaxattorney.com), has been revised to reflect the changes.
Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.
The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. These standards are used when evaluating installment agreement and offer in compromise requests.
The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.
Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.
Page Updated Last on: Jun 05, 2012