“More Flexible IRS Offer-in-Compromise Terms” by Frank C. Carnahan

The IRS announced more flexible offer in compromise terms in IR-2012-53, May 21, 2012. Announced changes include:

1. The IRS now calculates a taxpayer’s “reasonable collection potential” by looking at only 1 year of future income (down from 4 years)for offers paid in 5 or fewer months, and 2 years of future income (down from 5 years) for offers paid in 6 to 24 months. All offers must be fully paid within 24 months from the date the offer is accepted (longer term deferred OICs apparently are no longer available).
2. Taxpayers may repay their post high school student loans (proof of payment must be provided).
3. Taxpayers may pay state and local delinquent taxes based on percentage basis of tax owed to the state and IRS.
4. Allowable Living Expense allowance categories and amounts are expanded, and national standard expenses can include credit card payments and bank fees and charges.
5. Narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential.
6. Equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.