IRS Makes it Easier to Settle Tax Debts

Linda Beale reports that the IRS is making the Offer in Compromise process easier for taxpayers:

“The IRS has announced more flexible offer in compromise terms, in an effort to make it easier for financially distressed taxpayers to get a “fresh start” by erasing their tax liabilities, and may also result in less time taken for the process (2 years instead of 3-5 years).  See  IR-2012-53 (may 21, 2012).  See also Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise and Interim Guidance Memorandum

The main changes 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

The revision to calculations of future income are significant.  In the past, the Service attempted to look forward 4 years.  Now, if the liability will be paid within 2 years, the Service only looks one year ahead.  Further, permitting delinquent federal taxpayers to repay student loans and pay local and state taxes due seems a worthy step.  If there isn’t enough money to pay all of the federal taxes, it makes sense to allow the taxpayer to pay local taxes due.  States and municipalities are still suffering from the recession, and this will be a small measure of benefit there as well as to the individual taxpayers.”

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