New Changes to Offer in Compromise – More Flexibility

The IRS announced this week it changed some of the rules that govern the Offer in Compromise (OIC) program – more flexibility meaning more folks can qualify. An article in Reuters entitled IRS Widens Taxpayer Debt Forgiveness Program and in Accounting Today entitled IRS Makes Offer in Compromise Program More Flexible outline these changes aimed at giving more American taxpayers flexibility to repay their tax debt as part of the IRS’s Fresh Start initiative.

Due to the prolonged recession, many taxpayers are struggling to make financial ends meet, with some not paying their IRS tax debt at all. The IRS decided to make changes to the Offer in Compromise program so that more qualify for tax debt relief believing collecting something is better than collecting nothing at all. The “Offer in Compromise” program was designed to let struggling taxpayers negotiate a tax settlement with the IRS for less than what they owed.

According to the Accounting Today article, the IRS focused their changes on adjusting the financial analysis that determined Offer in Compromise settlements such as a taxpayer’s ability to repay their tax debt, qualifying for the OIC program and paying off their IRS debt quicker. IRS calculations for “reasonable collection potential” of a taxpayer will now consider the following:

One year of future income for offers paid in five or fewer months, down from the previous four years.
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. In order to stay in the program, an individual must agree to file and pay taxes for the next five years.

While this latest announcement will be good news for those searching for an IRS tax settlement, know that although the Offer in Compromise program is more flexible now, it’s still a complicated, drawn out process dealing with the IRS -it’s hard to navigate without proper representation. Accounting Today reports that in fiscal 2011, the IRS accepted 34% percent of offers it received. Cases are most often denied if the IRS believes there is reasonable collection potential from a taxpayer.

Offer in Compromise is not the only debt settlement program available. In many cases an Installment Agreement or IRS payment plans are better choices, but there are program restrictions and not everyone will qualify.

If you are seeking IRS debt relief through a debt repayment program such as Offer in Compromise, you are advised to hire a certified tax resolution specialist or tax attorney to greatly improve your chances of successfully negotiating a tax settlement. They will deal with the IRS on your behalf and help you put your tax debt issues firmly behind you.

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