Tag Archive for: Offer in Compromise

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IRS Fresh Start: A Way Forward for Unpaid Tax Burdens

IRS Fresh Start: a Way Forward for Unpaid Tax Burdens

In 2008, in response to the recession caused by the collapse of the housing market, IRS re-invigorated a program that had been called The Fresh Start Program for many years. The Fresh Start initiative is not a clean slate or a way to avoid paying taxes.  IRS is staunchly unsympathetic to those individuals and business owners who try to avoid paying taxes owed. Fresh Start is, instead, a way to eliminate fees and penalties and find a payment plan that works for your financial situation  to repay back taxes in full.

When back taxes are owed IRS can place leans on properties and lays on accounts.  Under the Fresh Start program a taxpayer can apply to have a lien removed if their tax burden is under $25,000.

If you have a heavy back-tax burden here are some steps you must take to apply for the Fresh Start initiative:

1:  Pay your current year’s taxes! Taxpayers applying for the Fresh Start Program cannot have a tax balance due.  IRS is looking for businesses whose tax burden was due to temporary hardship not for chronically delinquent taxpayers.

2: Check to see if you meet the following criteria:

    • Firstly, self-employed individuals must demonstrate a drop in their net income of 25 percent or greater
    • Secondly, earnings for married couples filing jointly must be under $200,000 per year, and single filers under $100,000 per year
    • Lastly, you must owe less than $50,000 dollars in taxes overall

3: Meet with a tax attorney to determine if you may qualify for an Offer in Compromise. Factors that will affect your eligibility are:

  • Credit worthiness: Having other accounts in collections can negatively impact your credit and ability to purchase a home, car, or apply for credit.
  • Accuracy and record-keeping:  Demonstrate the amount IRS claims that you owe is not correct. Reasons can include: tax preparation error, misunderstandings about .
  • Effective Tax Administration – when the IRS determines that paying the full amount owed would cause undue financial hardship, then they may agree to take less than the full amount owed.

If you have excessive back taxes for your business or family entity, reach out to the dedicated team at MIlikowsky Tax Law.  Our expertise in IRS negotiations can help to offset your tax burden and create options for your future.

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What Is an Offer in Compromise?

When you owe the Internal Revenue Service more than you can reasonably afford to pay, they may be willing to negotiate with you. That’s where an Offer in Compromise (OIC) can help mitigate your financial burden in this situation.

An OIC requires you to submit specific forms that explain to the IRS why you can’t pay your tax bills. If the Internal Revenue Service agrees with your application filing and accepts your offer, you will receive a tax reduction.

An OIC won’t always be the right solution and will depend on your circumstances. Below is an explanation of an OIC and why it may (or may not) be a good choice for you.

How Does an Offer in Compromise Work?

Before determining whether an OIC is right for you, it’s important to know how the OIC process works. First, you must submit an application demonstrating financial hardship. Upon receiving your OIC application, the IRS determines how much you can realistically afford to pay after surveying your expenses, assets, and income. This survey helps calculate your Realistic Collection Potential (RCP). While there are plenty of legitimate ways for you to calculate your RCP, the IRS has the final say and will identify your RCP.

In your application, the IRS will also want to know why you feel you should be exempt from paying your full taxes. You’ll need to demonstrate a significant change in your circumstances or lifestyle, such as a terminal illness, consistent depression, drug addiction, a disability requiring a career change, or a balance so large you couldn’t reasonably pay it off.

Is Making an Offer in Compromise Right for You?

Once the IRS determines that you can’t afford the required payments, you’ll receive temporary OIC status. Your temporary status doesn’t mean that you’ll be guaranteed OIC status forever: your income will remain under review for the years ahead, and any tax refund you earn will be paid towards your debt.

There are benefits to temporary OIC status, namely:

  • Debt reduction – OIC helps you to reduce your debt without sacrificing earnings or assets. It makes it easier to get out of financial hardship.
  • An end to collection activities – OIC status can end collection activities of assets and earnings, but it will not halt collections processes that started before your OIC request.
  • Helps with managing financial stress – Receiving OIC status can lead to a reduction in stress from dealing with the IRS debts because you can look forward to paying off your debt.

The Issues with an Offer in Compromise

As with any financial strategy, an OIC will not apply to everyone who has trouble paying their IRS bills. In fact, it can be very difficult to meet the asset and income guidelines to be applicable for OIC status.

Additionally, when have OIC status, you’ll have your possessions and finances scrutinized by the IRS. If you have too many assets to liquidate to pay off your debt, the IRS may reject your OIC. More often than not, an OIC applies if you have no assets for the IRS to claim.

If you benefit from refunds and tax credits, you will need to surrender your right to these with an OIC. Although OIC status can lower the amount you owe to the government, you will have to forfeit your rights to certain types of support in the following year.

Should You Consider an Offer in Compromise?

An OIC can be the right solution if you are suffering from tax payment issues, but it’s important to understand the rules and regulations and how they can affect you before you complete your application. Remember: an OIC is only a temporary strategy, and there may be other financial solutions available to help you get back on track.

It’s worth speaking to a tax attorney about your options. Tax professionals can help you to determine why you are in debt and what you can do to alleviate the issue. If you want to learn more about OIC status, reach out to a tax lawyer at Milikowsky today!