NEW IRS OFFER IN COMPROMISE RULES
A WAY TO DEAL WITH NONDISCHARGEABLE TAXES
In general, income taxes can be discharged in bankruptcy as long as more than three years have passed since the original due date of the return plus extensions, and the return signed and filed by the taxpayer has been on file for at least 2 years. Bankruptcy discharge is available to many taxpayers who owe older taxes and have filed all their returns. But what about other taxpayers, such as those whose tax debts aren’t that old, or those who owe other taxes like employee withholding, or those who filed a bankruptcy less than eight years ago? What is available for these taxpayers to deal with their overwhelming tax debts? The answer is that these taxpayers may be able to resolve their debts through an “Offer in Compromise” (OIC).
The OIC has been available to taxpayers for nearly 50 years. Before the rules recently changed, an acceptable OIC amount had to be equal to or greater than the sum of (1) the liquidation value of the taxpayer’s assets (less some minimal exemptions) plus 48 times the ability of the taxpayer to make monthly installment payments. I have been filing OICs for many years, and during that time I have learned that most taxpayers to whom I explained the OIC program couldn’t do it because it was too expensive. With attorney/accountant fees, a minimum down payment of at least 20%, the offer amount itself, most offers cost more than $10,000.00, and most taxpayers simply couldn’t afford it.
All of this changed for the better on May 20, 2012 when IRS significantly revised the OIC rules. Some of the changes include:
● In determining ability to make monthly payments, IRS now allows payment of student loans, minimum payments on credit cards and delinquent state tax payments;
● In determining ability to make monthly payments, IRS now allows continued car payments even after the loan on the existing car has been paid in full;
● In determining liquidation value of assets, IRS excludes $3,000.00 in value of the car.
● And the biggest change of all: Ability to make monthly payments is now multiplied by 12 instead of 48. That’s a reduction of 75% for the future income interest!
There are several other beneficial changes in the OIC. A program that used to be available to only a few taxpayers is now available to many more.
If you would like to discuss whether you qualify for an OIC, and whether an OIC is a viable alternative to resolve your tax debts, please call and make an appointment. The first appointment is no charge. I’d be happy to discuss the options available for you.
Paul R. Tom
2727 E. 21st Street, Suite 604
Tulsa, Oklahoma 74114
Ph: (918) 743-2000
Fx: (918) 749-8803