In our last post, we discussed how some California taxpayers can benefit from a six-month extension to pay taxes this year. But some taxpayers have large debts to the IRS that may take them a significant amount of time to pay off. There are other options that can help these taxpayers, such as installment agreements and offers in compromise. Under the Fresh Start program, the IRS has also announced changes to these options with the goal of helping struggling taxpayers.
Installment agreements are one way taxpayers can reduce their debt. They are used by those who cannot afford to pay off their debt at once, and offer payment plans lasting months or even years. Traditionally, taxpayers who owed more than $25,000 had to file financial information with the IRS in order to enter into an installment agreement. Through the Fresh Start program, the IRS has raised that threshold to $50,000.
In addition, a taxpayer entering into a streamlined installment agreement had to complete payment within five years. The IRS has now given taxpayers six years to repay their debts. But there is one qualification, however. Taxpayers will have to allow the IRS to automatically deduct monthly payments in order to become eligible for a streamlined installment agreement.
Under an offer in compromise, the IRS accepts less than the full tax debt owed. Before the IRS agrees to an offer in compromise, it assesses the taxpayer's ability to pay the full debt. If the IRS believes the taxpayer can pay the whole debt or can pay it off over time, it will typically refuse an offer in compromise. The IRS has modified the way it examines taxpayers' financial statuses, reflecting an awareness of how the economy has affected taxpayers.
While these changes may help some taxpayers, the IRS's intent remains to collect taxes. Tax laws can be complex, and people considering taking advantage of the changes implemented under the Fresh Start program can benefit from the services of an experienced tax law attorney.
Source: Internal Revenue Service, "IRS Offers New Penalty Relief and Expanded Installment Agreements to Taxpayers under Expanded Fresh Start Initiative," IR-2012-31, Mar. 7, 2012.