Times are tough, and as the economy slowly rebounds from the economic meltdown, many people are still having a difficult time making ends meet — and unfortunately, in some cases, tax obligations cannot always be met.
In order to make it easier for people to pay their tax obligations, the Internal Revenue Service created the Fresh Start program, which is designed to allow taxpayers to pay their accounts in full by negotiating a reduced rate — known as an offer in compromise. In order to benefit from the program, the IRS looks at criteria that determine the taxpayer’s ability to pay, including income, assets and expenses.
Although the program was considered a step in the right direction when it was first implemented a few years ago, many criticized it by saying that the criteria the IRS used to give taxpayers that fresh start were too stringent, and therefore the program excluded the people who needed help the most.
In order to fix these problems, the IRS recently revamped the Fresh Start program and has implemented the following changes.
Future income. Previously, when a taxpayer made an offer to pay tax debt within five months of the offer in compromise, the IRS looked at four years of the taxpayers’ potential future income to decide whether or not to approve the plan. If the balance was set to be paid within 24 months, the IRS would look at five years of the taxpayers’ potential income. The recent changes made to the Fresh Start program shorten the scope of this requirement, so when someone wants to pay their bill within five months, the IRS only considers one year of future income. Similarly, if the taxpayer agrees to pay the debt within 24 months, two years of the taxpayers’ potential income is considered.
Living expenses. Previously, the IRS did not consider things like state taxes owed or payments made on student loans as part of their living expenses. Now the IRS looks at the taxpayer's whole financial situation and includes these payments when determining monthly expenses.
Assets. When looking in income, the IRS used to consider assets that the taxpayer no longer had. For example, if the taxpayer had money in the stock market at one point but lost it, the IRS would count that as income. With the changes to the program, this is no longer the case.
Get help with your tax problems
Tax matters can be complicated and stressful. That is why it is important to have an advocate by your side who understands the complexities of tax law and knows how to speak Uncle Sam's language. If you are having a tax problem, contact an experienced taxation law attorney who can advise you of your rights and help you navigate your way through this complex system.