The IRS has tried to make it easier for taxpayers to settle their tax liabilities by making an IRS settlement through the Offer in Compromise program. In fact, the IRS has expanded the rules to be eligible and qualified for an offer in Compromise. The new expanded IRS program is now called the Fresh Stat Program.
If you're not familiar, an Offer in Compromise is an IRS settlement based on many factors, including your gae, your income, your assets, your allowable expenses, your future income potential and the Statute of Limitations. There are other factors as well. The IRS now includes your credit card payments as well as your student loan obligations.
If you owe federal taxes and due a financial setback, there is little if any chance of you paying your back tax debt, you can ask the IRS to accept a portion of what you owe to settle your tax liability. As written above, this year, the agency has made it easier to qualify for the program. The IRS has streamlined the Offer in Compromise program.
"The IRS took these measures because it is aware that many taxpayers have been struggling to meet their obligations in the wake of the country's economic downturn", said Jennifer A. Jenkins, an IRS spokeswoman.
"To ease the burden on some who are feeling the financial pinch the most, the IRS streamlined and expanded its Offer in Compromise program," Jenkins said.
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For example, in the past taxpayers needed to have a tax liability of less than $25,000 to participate in the program. The tax liability limit for incomes of $100,000 is now $50,000. Also, taxpayers must have incomes of $100,000 or less to be considered for the program.
"Offer in Compromise (OIC) still are subject to acceptance based on legal requirements and consideration of the taxpayer's ability to pay the tax owed," she said.
There is another added benefit that helps taxpayers already making payments on an Offer in Compromise who are now having trouble making their payments.
Struggling taxpayers can now apply to renegotiate an existing settlement offer to get more manageable payments based on their current financial situation.
You, the taxpayer in need of assistance, may often run into trouble when you dip into your retirement savings to pay bills or make mortgage payments.
The fund trustee is responsible for taking a 20 percent tax bite out of funds withdrawn from a 401(k) or other retirement account, but the taxpayer also is responsible for income tax and another 10 percent penalty for withdrawing money before retirement age.
The total tax on a withdrawal of $100,000, for example, is about $21,000, but the trustee deducts only about $12,000. The taxpayer still must pay income tax and the excise tax, which amounts to another $9,000 in federal taxes, Pancerella said.
If you're taking money out of your retirement account you don't have $9,000 to pay the IRS.
That is why taxpayers should consider all of the remedies available to them, including an Offer in Compromise, before taking cash out of their retirement funds.
IRS employees are now permitted to consider a taxpayer's current income and potential for future income when deciding on an Offer in Compromise, Jenkins said.
Normally, the standard practice is to judge a settlement offer amount on a taxpayer's earnings in prior years. This new step provides greater flexibility when considering an offer in Compromise from the unemployed.
The IRS may require that a taxpayer entering into such a plan agree to pay more if the taxpayer's financial situation improves significantly, Jenkins said.
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