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IRS's Fresh Start Initiative Still Poses High Hurdles for The Offer In Compromise Program

In 2011 The IRS created what they call a “Fresh Start Initiative” which is a series of new steps to help struggling taxpayers with their tax liabilities. In May 2012, the IRS expanded their Fresh Start Initiative by offering more flexible terms to itsOffer in Compromise (OIC) program. These are the “New Programs” that you are constantly hearing about on the radio and late night ads from out of state companies that claim to know the “Secrets” of resolving your tax debt. The OIC program is designed to help the most financially distressed taxpayers to significantly reduce their tax liability. Some of the new terms announced in May 2012, include the following:

• Revising the calculation for the taxpayer’s future income.
• Allowing taxpayers to deduct payments to student loans.
• Allowing taxpayers to deduct payments for state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

One of the biggest changes made to the OIC program changed how the IRS calculates a taxpayer’s reasonable collection potential. Before May 2012, the IRS would multiply a taxpayer’s disposable income by 4 or 5 years depending on the length of time it would take the taxpayer to pay off the offer. After May 2012, the IRS announced that if the offer could be paid in 5 or fewer months, then the taxpayer would only have to multiply their disposable income by 12 months, and if the offer would be paid in 6-24 months then the disposable income would be multiplied by 24 months. This change drastically decreased what a taxpayer would have to pay in an Offer in Compromise. Now if this sounds to good to be true, it just might be. One of the OIC requirements the IRS did not change when expanding their Fresh Start Initiative is that if the taxpayer can pay their tax liability in full through an Installment Agreement or within the statutory period, then the offer will be rejected. This essentially means that the IRS will initially multiply a taxpayer’s disposable income by at least 72 months, and if it shows that the total tax liability can be paid within that time then the offer will be rejected.


While the IRS’s Fresh Start Initiative programs are beneficial to taxpayers, they are not as “streamlined” as the IRS would like you to think. In any event, these programs do offer relief to tax payers from aggressive collection methods by the IRS and those who ultimately qualify for an OIC will be able to drastically reduce their tax debt.