The Fresh Start program is a system where the Offer In Compromise (OIC) was reformed to make it easier for those in tax debt to write off much of their debts and get a fresh start.
In 2011 the federal government came to the understanding that thousands of people with tax debt to the IRS couldn’t make the repayments demanded by the IRS and were effectively trapped by an unfair system. Thanks to extremely tight regulations surrounding qualifying for an OIC people who still genuinely couldn’t repay their debts without extreme financial hardship had no choice but to repay stiff installment plans.
What is an offer in compromise?
An IRS offer in compromise is an agreement with the IRS to pay a much smaller amount of money towards their tax debt in a settlement where after the smaller repayment they get a clean slate.
The IRS can make an offer in a compromise where someone can prove they genuinely cannot make a tax debt repayment without undue financial hardship.
The rules around getting an OIC used to be very tight in order to ensure very few people qualified for one. In principle this made some sense – the IRS job is to get people to pay tax to the Treasury and millions getting an offer in compromise could hurt the government’s income.
In practice this left people who genuinely could not pay their tax debts in a lot of financial trouble. It is very hard to break out of a spiral of debt. Loosening the criteria of the offer in compromise under the Fresh Start program would give thousands of people the break they needed to get some financial order back in their lives.
How Did the IRS Loosen OIC Criteria?
The IRS recognized that there are other essential debt repayments that people had to make. You cannot simply write to your student loan company and say “I’ve a tax debt to repay so I’ll just stop paying you for a year while I pay it off.” The student loan company would send all the resources it can muster after you to get that debt back should you just stop!
Another example is that the tax debtor has to still pay local and state taxes. A state tax authority can be almost as nasty as the IRS should you tell them you’re not paying them as the IRS wants your money.
These two – student loans and taxes – were made allowable expenses when it comes to an offer in compromise expenses assessment. The IRS also allowed other reasonable expenses within the Fresh Start program.
In addition, the IRS state, “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 could mean that should you have lost your job and face leaving town to start anew the IRS won’t just assume you’ll be on your feet again very quickly.
Short Term Pain
Getting to a situation where you receive an offer in compromise is no walk in the park. Almost like bankruptcy, you will have to cut back on many things you once took for granted in life like dinners out with friends and big dollar holidays. If you own two or more properties you could have to revise that portfolio down to meet the tax debt.
Not everyone is an international traveling, multi-property owning millionaire! Ordinary folk who have hit hardship for a variety of reasons including sudden large medical bills and redundancy from work are often hit with tax bills they just can’t meet thanks to their circumstances. It is these people that largely benefit from the newly loosened criteria of the Fresh Start program.
Get Good Tax debt Advice
Though the IRS has loosened its criteria for qualifying for an offer in compromise, this doesn’t mean that the agents are any less determined to maximize their income from you. This is why getting good tax advice from tax resolution specialist and representation from a certified tax professional such as a CPA or tax attorney will improve your chances of success.
A tax professional can help you fill out the forms and provide the correct proof of circumstances so that you not only get it the right first time but also maximize the reduction in your tax debt burden. You should end up saving more money owed to the IRS than you pay the tax professional to help you get an OIC.
Contact Defense Tax Partners today to discuss your needs! 1-866-657-1040