Fresh Start Tax Solutions

An offer in compromise through the IRS Fresh Start program allows some taxpayers to settle their debts for a lesser amount than what they owe.

Here’s how it works:

When you submit an application for an offer in compromise, you provide the IRS with a dollar amount that you feel you can afford to pay each month. In addition to the application, you must submit a non-refundable $186 application fee and a non-refundable initial lump sum payment equal to 20% of the total amount owed (unless you qualify under the low-income certification guidelines to have both the fee and initial payment waived).

When considering whether to accept your offer (the monthly amount you suggested in your application and the timeframe for repayment), the IRS will review these factors and others:

• Your ability to pay
• Your income
  • If you are offering to pay back your debt in five months or less, the IRS will look at one year of your projected future income
  • Taxpayers who propose a payback period of six to 24 months will have two years’ worth of projected future income considered
• Your assets
• Your expenses
• Other relevant factors

When calculating a reasonable payback amount and timeframe for your situation, the IRS will determine a living expense amount, which is money that the IRS assumes cannot go towards paying back your tax debt. The living expense amount can include a broad range of expenses, such as:

• Credit card payments
• Minimum payments on student loans (if the loans are guaranteed by the federal government)
• Bank fees and charges
• Other expenses

If, after considering the totality of your financial circumstances, the IRS determines that your offer is the largest amount that you can reasonably afford within a certain timeframe, generally the IRS will accept your offer in compromise.

If, however, the IRS determines that you are able to pay the full amount of taxes owed—either in a lump sum or through a payment plan—or you can pay more than the amount that you have submitted, generally it will deny your offer in compromise. If your offer is rejected, you have 30 days to appeal the decision.

Once your offer is accepted by the IRS, you will be notified in writing and will need to pay the remaining balance in five payments or less.

You also have the option of making payments to the IRS while your offer is being considered. If it is accepted, you would then continue to make payments on the balance normally.

It is important to note that while your offer is being considered by the IRS, it is possible that a Federal tax lien will be filed against you; however, collection actions will be suspended until the offer in compromise determination is complete.

Effective March 27, 2017, the IRS will not review any new OIC applications for people who have not filed all their tax returns, unless it is the current year’s tax returns and you’ve filed a valid extension.

The qualifications are based on your family size, household income, and where you live. Your gross monthly household income must be less than or equal to the amount on IRS Form 656, Section 1, that corresponds with your family size and your location.

Yes, if the offer is accepted and the amount has been paid in full.

Maybe. The IRS isn’t required to release a levy that was put into place before you submitted your offer. Depending on the unique circumstances of your case, the IRS may be able to remove the levy if it was started after your OIC was received.

If you disagree with the valuation of your ability to pay, you have several options. First, you can provide additional documentation to show that the payment amount is inaccurate. Second, you can request a telephone conference with an employee to discuss your dispute. Also, some cases may qualify for Fast Track Mediation.

If you have a preference of which tax debt you would like to pay first, you can let the IRS know in writing either when the offer is made or when you make a payment. Absent a written preference, the IRS will apply the payment in whatever way is in the best interest of the government.

An OIC rejection decision can be appealed within 30 days of receiving the rejection letter by following the instructions contained in the letter. If you do not wish to appeal, then you would either pay the tax debt in full or request an installment agreement so that you can make periodic payments on your tax debt.

If the taxpayer defaults on the OIC, the IRS will reinstate the tax debt minus whatever payments have already been received.