IRS Liberalizes Offers in Compromise Program

Related Attorney(s): David S. De JongMark W. SchweighoferEric J. RollingerDavid B. Torchinsky

Media Type: Alert

The Internal Revenue Service, on May 21, 2012, announced liberalized guidelines for Offers in Compromise designed to grant relief in hardship situations to more taxpayers and at a lesser cost.  Most significantly, IRS will process and normally approve Offers in excess of the sum of a taxpayer’s equity in assets plus either 12 or 24 months disposable income depending, respectively, upon whether the Offer will be paid following acceptance in five or fewer installments within 24 months or paid in more than five installments on a monthly basis within 24 months of the offer's submission.

The definition of “disposable income” will be narrowed as IRS will generally allow expenses for back state taxes and student loans as well as added operating expenses in the case of older vehicles. The definition of “equity in assets” will also be narrowed as IRS will generally disregard income producing assets, the first $3,450 of equity in one or two vehicles and cash on hand needed for allowable living expenses (minimum $1,000).

If you owe back federal taxes and have never sought an Offer in Compromise because of the prior guidelines or if you have been previously rejected, now may be the time for submitting an Offer.

Offers in Compromise are not for every business or every individual with back taxes.  Most particularly, those approaching the 10-year statute of limitations (in the absence of a timely suit by IRS subsequently reduced to judgment) on collection who are being left alone or who have installment agreements should usually not seek relief.  Applying for an Offer in Compromise suspends the running of the limitations period.

If you would like to meet with one of our tax attorneys to determine if an Offer is advisable for you or if you need assistance with any federal or state tax matter, please call 301-340-2020.

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