How the IRS's New Office in Compromise Regs Affect Your Clients

The IRS has announced that it has issued new final regulations relating to its Offer in Compromise (OIC) program. This is vital news to some of your clients struggling to meet their tax obligations during the COVID-19 pandemic and others.

Mar 18th 2020
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What is happening at the IRS
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What is happening at the IRS

The IRS has announced that it has issued new final regulations relating to its Offer in Compromise (OIC) program (IR-2020-55, 3/12). This is vital news to some of your clients struggling to meet their tax obligations during the COVID-19 pandemic and others.

Briefly stated, an OIC is an agreement between a taxpayer and the IRS settling the taxpayer's tax liability for less than the full amount that is due. Generally, it may be an option for taxpayers who can't pay their full tax debt or those facing a financial hardship.

To qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year and deposited payroll taxes for the current quarter if he or she is a business owner. The IRS considers the taxpayer's overall financial circumstances when considering an OIC in an effort to resolve the amount due.

Now the new regs raise the OIC application fee from $186 to $205. The application fee must be submitted with the other paperwork required for an OIC. This fee is nonrefundable.

However, applicants who meet the definition of a "low-income taxpayer" may be entitled to a waiver of their OIC application fee, if their income is below 250 percent of the poverty level. A new provision in the Taxpayer First Act, passed in 2019, provides an additional way for low-income taxpayers to qualify for this waiver.

Normally, the IRS determines if taxpayers fall at or below 250 percent of the poverty level by examining their household's size and gross monthly income. The new law provides an additional standard for the IRS to use in making the calculation. Accordingly, the IRS will now also look at a taxpayer's AGI from the most recent tax return to determine if it is at or below 250 percent of the poverty level.

Taxpayers with an outstanding tax debt are encouraged to respond to IRS notices in a timely fashion and should not ignore correspondence received from the IRS. Those with an outstanding tax debt should contact the IRS at the phone number stated in the notice, online or by visiting a local Taxpayer Assistance Center (TAC). A listing of local TACs is available at www.irs.gov.

You may also seek assistance from the Taxpayer Advocate Service (TAS). Contact information for TAS is available online, including a listing of local TAS offices.

These rules are complex, so clients will likely need your assistance. Provide the guidance they seek regarding the OIC program. 

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