The Internal Revenue Service has revised the program that allows delinquent taxpayers who are experiencing financial troubles to settle their debts for less than the total tax liability.
The Fresh Start Initiative, which began in 2011, has been upgraded and now offers more flexible terms, allowing more people to take advantage of the significant savings the IRS gives through the program.
This program is not available to all taxpayers. In order to qualify, delinquent taxpayer’s must prove that they do not have the ability to repay the total amount and will not have the means to repay in the future.
Previously, the IRS looked at future income for the next four or five years. Because all debts must be repaid within two years under the offer-in-compromise, the IRS now considers one year of future income when the debt will be repaid in five or fewer months and two year worth of income potential when the offer is for more than five months, but less than 24 months.
When the IRS grants an offer-in-compromise, the taxpayers’ income and expenses are taken into account to determine monthly payment amounts.
Previously, there were few allowable expenses and much of the taxpayers’ budget was applied toward their tax bill. Now there are some new allowances that the government takes into consideration, including minimum student loan payments, state tax obligations and a more generous Allowable Living Expenses, making it easier for taxpayers to comply with the agreement and repay delinquent taxes.
The Allowable Living Expense allowance looks at the cost of living for the geographic area where the taxpayer lives. A miscellaneous allowance allows delinquent taxpayers to make credit card payments and take care of other financial obligations, such as bank fees.
The IRS hopes, that by expanding the Fresh Start program, more delinquent taxpayers will be able to settle their tax debts sooner, rather than later.