Good News for Taxpayers: IRS “Fresh Start” Program Helps Resolve IRS Disputes

It’s not very often that I can say this, but the IRS has recently taken steps to make it easier for taxpayers who are struggling with IRS debt to find relief. Aptly called the “Fresh Start” program, the initiative aims to give taxpayers a chance to settle their disputes with the IRS rather than endure a never-ending and expensive ordeal.

One of the key elements to this program is a change to the “Offer in Compromise” process which makes it easier for taxpayers to settle their debts for less than full cost.

Mondaq.com reports on the subject:

The OIC program permits qualified taxpayers with outstanding and unpaid tax liabilities to negotiate a full settlement for an amount that is less than the tax owed. An OIC agreement generally will not be accepted by the IRS if it believes that the outstanding liability can be paid through a lump sum or other type of payment arrangement. The IRS typically reviews the taxpayers’ income, expenses, assets and liabilities in great detail to make a determination regarding the taxpayers’ ability to pay.

In an effort to expand this program to a greater number of struggling taxpayers, the IRS has become more flexible in what it deems “ordinary and necessary” expenses in arriving at a taxpayer’s net monthly income. Specifically, under the “Fresh Start Program,” the IRS has expanded the Allowable Living Expense Category to include additional expenses, such as credit card payments and bank fees, while increasing the total amount allowable. The program also allows expenses for the repayment of student loans and delinquent state and local taxes.

The most significant change to the OIC program under the “Fresh Start” initiative is the change in the calculation of the taxpayer’s “reasonable collection potential” under the future income component. The “reasonable collection potential” is determined by analyzing the taxpayer’s net realizable equity in assets and future income. The IRS now considers only one year of future income for offers that will be paid in full within five months when previously they considered four years of income. The IRS will now consider two years of future income for offers paid in full within six to 24 months, down from five years of income. For taxpayers whose reasonable collection potential is driven by future income and less by net realizable equity in assets, this change is likely to have a meaningful impact in the determination of whether they qualify for an OIC.

The overall result of these changes and improvements is that increasingly more financially troubled taxpayers will qualify for OIC relief.

I realize that this may sound confusing—what doesn’t, when you’re dealing with the IRS. But the net impact is that struggling taxpayers now have a better chance of resolving their disputes with the agency. And that is good news no matter how you look at it. If you’re in the midst of an IRS dispute and you’d like to learn more about your options, please don’t hesitate to contact us today!