November 13, 2012

The IRS brings good news this week to middle-class Americans who continue to struggle with tax debt by expanding their Fresh Start Initiative.

Loosened guidelines for the Offer in Compromise program, which forgives a portion of a taxpayer’s debt, will allow more Americans to qualify as well as eliminate their tax debt in as little as two years, compared with four or five years.

The adjustments to the program come after the IRS recognizes that many taxpayers are still struggling to pay their bills. They wanted to apply a common sense approach to reflect real-world scenarios.

Changes to the program include:

  • Revising the method of calculating taxpayer’s future income.
  • Flexibility in repaying student loans.
  • Flexibility in paying local and state delinquent taxes
  • Expanding the Allowable Living Expense allowance (expenses such as credit card payments and bank fees can now be taken into account).

The changes will allow many more consumers to qualify for tax relief under the Offer in Compromise program. Specifically, when the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years.

“This phase of Fresh Start will assist some taxpayers who have faced the most financial hardships in recent years,” said IRS commissioner Doug Shulman. “It is part of our multi-year effort to help taxpayers who are struggling to make ends meet.”

The IRS, having a reputation of rigidity, surprised many Americans with this welcomed announcement of increased flexibility. Full details of the announcement are available at theIRS website.