The IRS Gets Fresher with Its Tax Debt Relief Program
I recently had the pleasure of attending a tax seminar (hold the laughter) on updates to the IRS’ Fresh Start program. This program helps to erase tax debt. You can find out generally how the entire program works here.
The Godfather of Tax Debt Resolution, aka Robert (Bob) McKenzie, laid out the details. The following are my Top Ten changes to the program:
1. Tax liens are no longer automatic.
Tax Liens are no longer automatic: The IRS used to automatically file a tax lien when you were late on taxes. This tax lien creates a black mark on your credit report. Borrowing becomes more expensive, or simply not available, when a tax lien shows up.
2. The IRS is currently accepting “Offers in Compromise” (OIC) at historically high levels.
One in three OIC’s were accepted by the IRS last year alone.
3. OIC – Reduced valuation of assets.
The IRS looks at the “Reasonable Collection Potential” (RCP) when deciding whether to accept an OIC. In shorthand, this is how much money the IRS thinks it can get from you. The RCP goes down when changing the formula that calculates the value of your assets. This in turn lowers an OIC figure that the IRS may accept.
4. OIC – More allowable expenses.
This is another factor in calculating the RCP. The RCP goes down by also changing the formula that calculates your expenses. Of particular importance, the IRS now factors in student loan payments when adding up your expenses.
5. OIC – Calculated future income lower.
Another change in the formula to figure your RCP. The greater your calculated future income, the greater your RCP. The IRS, however, has significantly reduced the period it uses to calculate future income. It used to calculate future income by taking your monthly income and multiplying that by 48-60 months. It now uses a 12-24 month multiplier only.
6. Fresh Start allows more time to pay off an “Installment Agreement” (IA).
IA’s allow you to pay off your tax debt over multiple years. The maximum period to pay off an IA has increased to 6 years from 5 years.
7. Streamlined IA – Maximum amount raised from 25K to 50K.
If your tax debt is $50,000 or less, and you follow the rules, the IRS must accept your proposed IA. This is the “streamlined” IA. The former maximum amount for streamlined IA’s was $25,000.
8. Streamlined IA – Reduced financial records burden.
The IRS has also changed its policy on submitting detailed financial records. If your tax debt is less than $50,000, you need submit information only about your employer and bank accounts. The threshold was formerly $25,000, and you had to submit a great deal of private information to the IRS (not that it ever would be used against you).
9. Lien thresholds increased from 5K to 10K.
Along with no more automatic tax lien, the amount to file a tax lien has been increased to $10,000. This undoubtedly provides comfort to those who can ill afford damaging credit marks.
10. Lien withdrawal made easier with Fresh Start.
There are two main ways to get rid of a tax lien. First, a tax lien release changes your credit report to show that you no longer owe back taxes. That you once had a tax lien is still there, though. A tax lien withdrawal removes the record completely. Check with you local, friendly tax professional for more details.
Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida.
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