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Help For Struggling Taxpayers Under The Fresh Start Initiative

The IRS expanded its "Fresh Start" initiative by providing more flexible rules regarding the offer in compromise (OIC) program. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed.

The program has expanded the availability of OICs for many taxpayers. However, determining whether an OIC is possible requires legal and financial knowledge. At Bucci Law Offices, our attorneys are highly skilled tax professionals. Christin Bucci is a lawyer and a CPA with a master's degree in taxation. We will evaluate your circumstances closely, secure an OIC and reduce your tax liabilities. Call our office in Fort Lauderdale at 954-900-9107 or in Miami at 305-340-2275 for assistance.

How Has The Program Changed?

An offer in compromise is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment plan known as an installment agreement. The IRS looks at the taxpayer's income and assets to make a determination of the taxpayer's reasonable collection potential (RCP). The OIC expansion changed this financial analysis, making OICs available to more taxpayers.

IRS changes to offers in compromise include:

  • Revising the calculation for taxpayers' future income

Under the previous rules, a taxpayer's reasonable collection potential was calculated by looking at four years of future income. This time period has now been reduced to only one year of future income for offers paid in five or fewer months and two years of future income for offers paid in six to 24 months, down from five years under the prior rules.

Future income is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. The number of months used depends on the payment terms of the offer. The necessary living expenses have changed considerably under the new rules, as discussed below.

In addition, equity in income-producing assets generally will not be included in the calculation of reasonable collection potential for ongoing businesses. Each case must be thoroughly documented regarding equity decisions in income-producing property.

  • Allowing taxpayers to repay their student loans

Guidance has been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. Minimum payments on student loans guaranteed by the federal government will be allowed for the taxpayer's post-high school education. Proof of payment of the student loan must be provided. If student loans are owed, but no payments are being made, they will not be allowed, unless the nonpayment is due to circumstances of financial hardship such as unemployment, medical expenses and similar circumstances.

  • Allowing taxpayers to pay state and local delinquent taxes

Payments for delinquent state and local taxes may be allowed based on a percentage basis of tax owed to the state and the IRS. When a taxpayer owes both delinquent federal and state or local taxes and cannot fully pay the liabilities, monthly payments to state taxing authorities may be allowed under certain circumstances.

  • Expanding the Allowable Living Expense category and amounts

The Allowable Living Expense is the national standard used in cases requiring financial analysis to determine a taxpayer's ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating the average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

The national standard for miscellaneous allowances has been expanded to include additional items. Taxpayers can now use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

  • Other changes

Other changes under the Fresh Start initiative include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of the reasonable collection potential. Inclusion of dissipated assets in the calculation of the reasonable collection potential is no longer applicable, except in situations where it can be shown that the taxpayer has sold, transferred, encumbered or otherwise disposed of assets in an attempt to avoid payment of the tax liability or used the assets or proceeds (other than wages, salary or other income) for other than the payment of items necessary for the production of income or the health and welfare of the taxpayer and his or her family, after the tax has been assessed or within six months prior to the tax assessment.

At a time when we are seeing some of the most financially distressed taxpayers in recent history, the flexibility provided by these changes will enable some taxpayers to clear up their tax problems, often more quickly than under the old rules. The difficulty experienced by taxpayers in recent years has not gone unnoticed by the IRS. In fact, the IRS recognizes that many taxpayers are still struggling in this economy. "This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," former IRS Commissioner Doug Shulman said in 2012. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

How Can A Tax Attorney From Bucci Law Offices Help?

Negotiating an OIC requires the completion of many IRS forms. Different forms are required based on your specific circumstances. It is in your best interests to meet with an experienced tax practitioner who can ensure that all necessary documents are completed accurately and on time.

The tax attorneys at Bucci Law Offices have extensive experience negotiating with the IRS and can navigate through the complex rules and regulations for submitting an offer in compromise so that you may resolve your IRS problems favorably. Contact us today to put the experience of our tax attorneys to work for you. Call 305-340-2275 in Miami, 954-900-9107 in Fort Lauderdale or toll free at 800-743-4263. We handle cases throughout Florida and worldwide.