These new flexible terms are a natural progression of when the IRS first announced its Fresh Start provisions in 2008. In 2008, the IRS announced lien relief for taxpayers trying to sell or refinance their homes. A year later, the IRS added new flexibility for taxpayers facing collection issues. In 2011, the IRS made changes to their lien policies and expanded the terms so that small businesses could resolve their tax debt through installment agreements. At the start of this year, the IRS expanded their installment agreements for taxpayers without requiring them to provide a great deal of financial information.
The new announcement regarding OIC has to do with the financial analysis used to determine the taxpayer’s qualification for OIC in which the IRS determines how much they can reasonably collect from potential taxpayers. The new announcement also allows some taxpayers to resolve their tax debt in as little as 2 years as compared to the 4 to 5 years before the new flexible terms. The IRS will now look at only 1 year of future income for offers paid in 5 months or fewer as opposed to the 4 years from before when it comes to calculating reasonable collection potential. For offers paid within 6 to 24 months, the IRS will look to 2 years of future income as opposed to the 5 years before the new provisions. Nevertheless, all offers must be fully paid within 24 months of the date the offer is accepted.
Some other changes to OIC that were recently announced by the IRS also include allowing taxpayers to repay their student loans, revising the calculation for the taxpayer’s future income and expanding what can be included under the Allowable Living Expense category. The Allowable Living Expense standards are used in the financial analysis when determining a taxpayer’s ability to pay by Installment Agreements with the IRS and in OIC. This is done by including the average expenses of basic necessities for those living in a similar geographical area. With the new flexible OIC, taxpayers can now include expenses such as bank fees and credit card payments under the miscellaneous allowance section within the Allowable Living Expense category.
Other changes to the OIC program include narrower parameters of when a dissipated asset can be included in the calculation of reasonable collection potential. Dissipated assets are assets the IRS feels you could have used to pay your tax. These dissipated assets are added to the calculation to determine the reasonable collection potential or the minimum the IRS will accept under OIC. The IRS has also clarified that it will now allow payments for loans that are guaranteed by the federal government for the taxpayer's post-high school education as well as payments for local and state tax debts based on the percentage of taxes owed to, both, the state and IRS.
While many of the new terms under OIC are described here, there are other various new changes to OIC that help small businesses and individuals to relieve their tax debt. It is extremely important to evaluate your situation with trained legal and tax professionals when going ahead with this process. Although there is greater flexibility under the new OIC terms now, there is also no guarantee as to how long it will remain this way so take advantage of the new Fresh Start provisions by the IRS while they are still being offered.
Disclaimer: This article is not intended to be legal advice. Legal advice depends on each and every person's particular circumstance. This article is for informational purposes only and must not be used for avoiding any penalties that may be imposed under the Internal Revenue Code. Arora Law Firm and Radhika Arora, Esq. specifically disclaim any responsibility for positions taken by readers in their individual cases or for any misunderstanding on the part of readers of this article.
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