IRS announces changes in “Offer in Compromise” terms

The changes which will give the IRS more flexibility are part of the Fresh Start program and are designed to help financially distressed taxpayers clear up tax problems more quickly. The Offer in Compromise process allows taxpayers to settle tax debts for substantially reduced amounts if they meet the criteria.

The changes affect the financial analysis used to determine if a taxpayer is eligible for an Offer in Compromise.  In calculating a taxpayer’s reasonable collection potential, the IRS will now look at only one year of future income for offers paid in five or fewer months (down from four years).  It will look at 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.

Among other things, the new rules revise the calculation for the taxpayer’s future income; allow taxpayers to repay their student loans and to pay state and local delinquent taxes; and expand the allowable living expense allowance category and amount.