IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start

May 24, 2012 at 2:37 pm (Uncategorized)

IR-2012-53, May 21, 2012

WASHINGTON — The Internal Revenue Service today announced another expansion of its “Fresh Start” initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.

“This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years,” said IRS Commissioner Doug Shulman. “It is part of our multiyear effort to help taxpayers who are struggling to make ends meet.”

Today’s announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In certain circumstances, the changes announced today include:

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

In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

Allowable Living Expenses

The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer’s post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without providing a significant amount of financial information.

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Tax Relief in Disaster Situations and Locations

March 8, 2012 at 2:27 pm (General Tax Information, IRS Information)

Via the IRS website

Update: IRS e-File, Free File to Remain Available to Victims of Irene, Lee and Texas Wildfires through Oct. 31.

Relief for Victims of Hurricane Irene

The IRS is in the process of providing tax relief to victims of Hurricane Irene. Relief for taxpayers in various locations, including postponement of filing and payment deadlines, will be listed here as it is announced. Watch this page for updates.

For information on disaster recovery, visit

Other Recent Tax Relief

  • Kentucky victims of February 2012 storms, see news release
  • Alabama victims of January 2012 storms, see news release
  • Virginia victims of August 2011 earthquake, see news release
  • Puerto Rico victims of September 2011 Tropical Storm Maria, see news release
  • Iowa victims of May 2011 flooding, see news release
  • New York victims of September 2011 remnants of Tropical Storm Lee, see news release
  • Pennsylvania victims of September 2011 Tropical Storm Lee, see news release
  • Texas victims of August 2011 wildfires, see news release
  • Kentucky victims of June 2011 severe storms, see news release
  • South Dakota victims of March 2011 flooding, see news release
  • Missouri victims of June flooding, see news release
  • Nebraska victims of May flooding, see news release
  • Montana victims of April 2011 storms and flooding, see news release

Don’t See What You’re Looking For? Around the Nation contains links to previously issued disaster relief.

The latest Federal Emergency Management Agency disaster declarations are available.

The IRS has two new fact sheets describing the impact of recently enacted laws on disaster relief:

For a definition of the Midwestern Disaster Area for Various Provisions of the Tax Extenders and AMT Relief Act of 2008, see Notice 2008-109

The Housing and Economic Recovery Act of 2008 offers a new option to homeowners who previously claimed a casualty loss deduction resulting from hurricanes Katrina, Rita and Wilma. See the news release, notice and questions and answers for further details.

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Fresh Start Video from the IRS

March 8, 2012 at 2:23 pm (Uncategorized)

Fresh Start (English)


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IRS Offers New Penalty Relief and Expanded Installment Agreements to Taxpayers under Expanded Fresh Start Initiative

March 8, 2012 at 2:20 pm (General Tax Information, IRS Information)

via the IRS website

WASHINGTON — The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet,” said IRS Commissioner Doug Shulman. ”This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.”

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly encourages taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements

The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on and following the instructions.
These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

“Our goal is to help people meet their obligations and get back on their feet financially,” Shulman said.

Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of Fresh Start.

Offers in Compromise

Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

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IRS Has $1 Billion for People Who Have Not Filed a 2008 Income Tax Return

February 23, 2012 at 12:38 pm (General Tax Information, IRS Information, Personal Taxes)

via the IRS

IRS Has $1 Billion for People Who Have Not Filed a 2008 Income Tax Return

IRS YouTube Videos:
Haven’t Filed a Tax Return in Years?: English | Spanish | ASL

WASHINGTON — Refunds totaling more than $1 billion may be waiting for one million people who did not file a federal income tax return for 2008, the Internal Revenue Service announced today. However, to collect the money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012.

The IRS estimates that half of these potential 2008 refunds are $637 or more.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2008 returns, the window closes on April 17, 2012. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. In addition, many low-and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2008 were:

  • $38,646 ($41,646 if married filing jointly) for those with two or more qualifying children,
  • $33,995 ($36,995 if married filing jointly) for people with one qualifying child, and
  • $12,880 ($15,880 if married filing jointly) for those with no qualifying children.

For more information, visit the EITC Home Page on

Current and prior year tax forms and instructions are available on the Forms and Publications page of or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2008, 2009 or 2010 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by ordering it on, filing Form 4506-T, or by calling 800-908-9946.

Individuals Who Did Not File a 2008 Return with a Potential Refund

State Individuals Median





Refunds ($000)*



18,400 $641 $15,738


5,800 $641 $5,952


29,000 $558 $24,913


9,600 $620 $8,152


122,500 $595 $112,201


20,500 $589 $18,909


12,500 $697 $13,893


4,200 $644 $3,784

District of Columbia

4,000 $642 $3,791


70,400 $650 $66,974


35,800 $581 $30,661


7,600 $714 $8,307


4,700 $541 $3,878


40,800 $692 $40,712


21,800 $664 $19,590


10,600 $658 $9,295


11,500 $631 $10,084


12,300 $640 $10,501


20,500 $662 $18,859


4,000 $579 $3,248


24,600 $641 $22,591


23,900 $699 $22,957


33,300 $660 $30,903


15,200 $584 $12,772


9,900 $591 $8,254


21,600 $593 $18,213


3,600 $599 $3,192


5,100 $623 $4,371


14,500 $619 $13,381

New Hampshire

4,300 $733 $4,518

New Jersey

31,300 $716 $31,185

New Mexico

8,000 $611 $7,420

New York

60,300 $686 $61,240

North Carolina

30,800 $558 $24,997

North Dakota

2,000 $625 $1,895


36,400 $622 $31,018


16,800 $620 $14,787


18,500 $527 $14,819


38,700 $695 $35,565

Rhode Island

3,400 $674 $3,040

South Carolina

12,200 $547 $10,158

South Dakota

2,300 $669 $2,234


18,400 $626 $16,130


96,200 $689 $97,057


7,800 $536 $6,676


1,700 $647 $1,410


30,800 $624 $28,670


29,900 $705 $32,138

West Virginia

4,300 $687 $4,068


14,100 $592 $11,885


2,600 $773 $2,919
Grand Total 1,089,000 $637 $1,009,905

*Excluding the Earned Income Tax Credit and other credits.

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The new 1099-K form FAQs

February 16, 2012 at 6:07 pm (Adult Industry, Business Taxes, General Tax Information)

What are the new 1099-K forms and how are they different from the 1099-Misc that I get?

1099-K = Gross amount of income from credit card transactions when using a payment platform (Niteflirt, Keen etc). You deduct the fees on your tax return.

1099-Misc = Net amount of what you were actually paid by the company itself (Papillon, 121 etc.). If this is wrong, you need to take it up with your company. If they won’t help you, you can always deduct those fees from your income on your tax return. It is better that you report what the 1099 says than to under report it as that creates a ‘red flag’ with the IRS.

Why does the amount on the form include the fees etc. that I paid already?

Companies are required to file the gross amount of payments that a contractor received (income that includes all fees that were taken out before payment). This is the amount that includes the fees, bids etc. that is withdrawn before a payment is made to the contractor.

How do I deal with this form on my tax return?

You report the gross amount exactly as it is stated on your 1099-K form. If you have kept accurate records of your income and expenses, it will be easy to pull out the fees, bids or any other amount that you have already paid before you received each check from the processing company. These amounts are deducted on your tax return just like any other expense.

I’m not sure what that means. IRS Won’t Require Reconciling 1099-K Reports on Credit Card Payments with Gross Receipts  Tax Domme, does this mean no more 1099-K or a change to how earnings are reported on the 1099-K?

To ‘reconcile’ in accounting means to balance payments and earnings. You reconcile your checkbook at the end of the month to match the checks that you’ve written, deposits made and other transactions with what your bank statement says to make sure that they balance. Same thing here. The IRS is saying that taxpayers do not need to show their records to match the gross earnings (gross means all income without taking out fees and expenses paid) reported on the 1099-K. This means that you need to accept what the 1099-K states, report that amount on your tax return and then deduct any amount that pertains to fees etc. from that income on your tax return.

It is still a good idea to keep accurate records though regardless of what the IRS says. In the case of an audit, you would still have to show support of your expenses paid.

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More Innocent Spouses Qualify for Relief Under New IRS Guidelines videos (English, ASL, Spanish)

January 6, 2012 at 11:26 pm (IRS Information)

English Version (via   on YouTube)

ASL Version (via  on YouTube)

Spanish Version (via  on YouTube)

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Do You Need to File a Tax Return This Year?

January 6, 2012 at 11:17 pm (General Tax Information)


For the IRS interactive program to determine if you need to file, please click on this link:,,id=219890,00.html

You are required to file a federal income tax return if your income is above a certain level, which varies depending on your filing status, age and the type of income you receive. However, the Internal Revenue Service reminds taxpayers that some people should file even if they aren’t required to because they may get a refund if they had taxes withheld or they may qualify for refundable credits.

To find out if you need to file, check the Individuals section of the IRS website at or consult the instructions for Form 1040, 1040A or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

Even if you don’t have to file for 2011, here are six reasons why you may want to:

1. Federal Income Tax Withheld You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.

2. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.

3. Additional Child Tax Credit This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

4. American Opportunity Credit Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.

5. Adoption Credit You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.

6. Health Coverage Tax Credit Certain individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit.

Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.

For more information about filing requirements and your eligibility to receive tax credits, visit

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2012 IRS Filing Dates and New Filing Rule

January 6, 2012 at 11:07 pm (General Tax Information, IRS Information)

The 2012 filing season has begun with new filing dates and a new filing rule for taxpayers and tax preparers.

E-filing officially begins January 17, 2012

The filing Season deadline for 1040 tax returns and extensions is Tuesday, April 17, 2012

Taxpayers requesting an extension will have until Oct. 15 to file their 2012 tax returns.

New IRS rule says that no tax return shall be e-filed until the taxpayer has received all of their expected tax forms (eg. W-2, 1099 etc). The deadline for issuers to send the forms is January 31st. Therefore, taxpayers may not receive their forms until February.

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Tax Credit Helps Low- and Moderate-Income Workers Save for Retirement

January 6, 2012 at 5:00 pm (IRS Information, Personal Taxes)


Dec. 16, 2011

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2011 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2011 tax return. People have until April 17, 2012, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2011. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2012 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

  • Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012;
  • Heads of Household with incomes up to $42,375 in 2011 or $43,125 in 2012; and
  • Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In tax-year 2009, the most recent year for which complete figures are available, saver’s credits totaling just over $1 billion were claimed on just over 6.25 million individual income tax returns. Saver’s credits claimed on these returns averaged $202 for joint filers, $159 for heads of household and $121 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
  • Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2011, this rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return. Form 8880 and its instructions have details on making this computation.
  • Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on

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