A Friendlier IRS – Relaxed Standards for the
By: Mark Jacobson
You may have seen or heard advertisements from law firms and tax professionals promising to help you settle your tax debt for “pennies on the dollar”. This is made possible through the “Offer-in-Compromise” (OIC) program of the IRS. For many years, the IRS has allowed taxpayers to utilize the OIC program to satisfy his or her tax obligations for less than the balance due. This OIC program has long been known to be a tedious and tiresome process of gathering information and dealing with IRS agents on a regular basis. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full, either as a lump sum or through a series of payments.
The Streamlined Offer-in-Compromise
The good news is that the IRS has recently implemented its new streamlined Offer-in-Compromise (OIC) program to help taxpayers who are struggling in today’s economy. These recent changes reduce the amount of documentation required from the taxpayer, implement more lenient standards in calculating deductions, and speed up the OIC process. Under the new streamlined process offers are usually processed in less than six months, while traditional non-streamlined offers would drag on much longer. The new changes are meant to more closely reflect real-world situations in today’s economy.
Do You Qualify?
The IRS considers many factors in determining whether or not a taxpayer qualifies for the streamlined OIC. First, your total tax liability must be less than $50,000 and your total household income must be less than $100,000. You must also be current on all of your filings and any other payment obligations you may have with the IRS. Last, you are not eligible if you have an open bankruptcy proceeding.
These standards for qualification only apply to the new streamlined process. If you don’t qualify under these standards you may still be eligible for an OIC under the standard non-streamlined process.
In determining the amount that they will accept, the IRS will look predominantly to income and assets. The IRS will consider all of the taxpayer’s assets (including IRA’s and 401(k)’s) and one to two years of the taxpayer’s net income, depending on the length of time between the offer and the full payment by the taxpayer. Under the new rules, more expenses are available to help reduce the amount of calculated income, including student loan payments and other miscellaneous expenses. They will also accept more recent property valuations in order to more closely reflect the actual value when home prices have dropped considerably.
The IRS will generally not accept an offer unless they feel that the amount is in line with their specified standards. Therefore, making the right offer is a critical component in getting your offer accepted.
The new rules for the OIC process will be an enormous benefit to many taxpayers. If you qualify, you may be able to get an offer accepted that would have been rejected in prior years. Ultimately, the streamlined OIC process will result in a higher number of acceptances, at lower offer amounts, that are processed faster through the system.
The IRS can seem to be a daunting foe with unlimited resources. Consult with a qualified tax professional who knows the process and can talk to the IRS for you. Nobody can guarantee specific results, but having the right partner can help you generate the right offer for your situation. The right offer gives you the best possibility of success.