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IRS HAS NEW LIBERALIZED OFFER AND COMPROMISE GUIDELINES

In the past, I was not always a big fan of Offers in Compromises, since the standards for acceptance were often fairly difficult, and so many Offer applications got rejected.   Instead, I usually employed other methods of handling tax assessments, as discussed in my other blog articles.

The IRS has now made it easier for a taxpayer to qualify for an Offer in Compromise. An Offer in Compromise, is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

In the OIC program, the IRS has always looked at the taxpayer’s future income plus net assets to determine the IRS’s collection potential from the taxpayer. The IRS has now made quite a drastic change in favor of the taxpayer when the future income is calculated.

Under the old rules, the amount of the taxpayer’s income in excess of the monthly allowable living expenses was multiplied by 48 if the offer amount could be paid within 5 months.  Now that multiplying factor is only 12, down by 75% !

Also under the old rules the multiplier factor was 60 for offers paid within 24 months.  Now that multiplier factor is only 24, not 60.

So for example, if your excess of income over living expenses is $1,000 per month, and you can pay $12,000 within 5 months, and you have no net assets, your offer of $12,000 may be accepted, even if your tax liability was say, $100,000.

That is unquestionably a very good deal.

In addition, the IRS has also liberalized somewhat how both net income and net assets are computed when calculating the Offer amount proposal.

Of course, every taxpayer’s situation is different, so the numbers would have to be carefully crunched before deciding whether to submit an Offer in Compromise to the IRS.   And, the IRS does traditionally take quite a long time before it decides whether an Offer is accepted or rejected, since Offers are carefully reviewed, and the IRS has a backlog of Offers. And one downside to an Offer is that during the time that the Offer is pending, the “CSED”  ( Collection Statute Expiration Date), or the time during which IRS can collect taxes from you before they expire to zero, is frozen.  In other words, the clock stops ticking for the 10 year expiration period on a tax debt.  So, before you file an Offer, pay attention to where you are in the CSED.  If your CSED is really close to expiring, filing an Offer now could be a very dumb thing to do.

But overall, I am much more OIC friendly than I used to be, and I have found myself filing more OIC’s than I have in the past.

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James JacksonIRS HAS NEW LIBERALIZED OFFER AND COMPROMISE GUIDELINES

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