IRS again eases Offer in Compromise tax payment plan requirements

The Internal Revenue Service doesn't need campaigning politicians or government statistics to know that many folks still are having a tough time financially.

The tax agency has its own firsthand experiences. When people have fewer dollars to spare, the IRS often slips to the bottom of the to-pay list.

So that it can get at least some of those outstanding tax payments, the IRS has a program that lets taxpayers settle their tax bills for less than the full amounts they owe.

Known as Offer in Compromise, or OIC, the IRS typically accepts such deals as long as the proposed payment amount is realistic, made in good faith and the IRS believes that the amount can be paid in full as a lump sum or a through payment agreement.

Now, as part of its Fresh Start program, the IRS is offering more flexible OIC terms.

In evaluating OIC proposals, the IRS looks at the taxpayer's income and assets, including future income prospects over several years.

Previously, the agency considered a taxpayer's future income over four years in connection with offers to be paid in five or fewer months. Five years worth of potential earnings were considered for OIC payments to be made in six to 24 months.

Now, however, the IRS will look at just one year of future income in determining whether to accept an OIC for a five-months-or-less payment deal.

Two years of future income is all that will be needed to evaluate longer-term compromise payment plans.

That one-year future income evaluation period is this week's By the Numbers figure.

IRS Form 656-B, Offer in Compromise Booklet and Form 656, Offer in Compromise, have been revised to reflect the changes.

The reduced future income considerations are just part of OIC changes that the IRS says should help financially struggling taxpayers clear up their tax problems more quickly than in the past.

In addition, the IRS has clarified guidance that now allows payments for federally guaranteed student loans, as well as for some payments of delinquent state and local taxes. The agency's allowance for living expenses also has been expanded.

The changes, says the IRS, should enable some of the most financially distressed taxpayers to clear up their tax problems more quickly than in the past.

Latest in IRS taxpayer relief moves: The expanded OIC parameters are just the latest in what the IRS says are "common-sense changes to … more closely reflect real-world situations."

In 2008, as the effects of the recession were literally hitting folks' homes, the IRS announced lien relief for taxpayers trying to refinance or sell their homes.

The next year, the IRS added new flexibility for taxpayers facing payment or collection problems.

The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements.

And earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing taxpayers to set up a payment plan without providing a significant amount of financial information.

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