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Changes to IRS Tax Settlement Rules

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					Title:
Changes to IRS Tax Settlement Rules

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468

Summary:
In recent years, the IRS has made a concerted effort to get people back
into good status by reaching deals on overdue taxes. The rules affecting
this program have just changed dramatically.


Keywords:
tax, taxes, irs, compromise, past due, owe taxes, compromise, 20 percent,


Article Body:
In recent years, the IRS has made a concerted effort to get people back
into good status by reaching deals on overdue taxes. The rules affecting
this program have just changed dramatically.

Changes to IRS Tax Settlement Rules

The IRS used to be the terror in most peoples nightmares. Specifically,
people who got behind on their taxes lived in dread of having the IRS
catch up with them and freeze their bank account, sell off their home and
so on. To promote voluntary resolutions, the IRS instituted a program
known as the offer in compromise.

The offer in compromise program was designed to let taxpayers with back
tax problems resolve their problems voluntarily. Instead of waiting for
the IRS to catch up to them, taxpayers could come forward and essentially
admit their sins. In exchange for this voluntary action, the IRS would
consider a reduction of the amount past due including penalties and
interest. To be frank, the program was a massive success.

Starting July 16, 2006, the offer in compromise program is undergoing
changes pursuant to a new federal law. Ironically, the small government
Republican majority in Congress pushed through this nasty piece of
legislation known as the Tax Increase Prevention and Reconciliation Act
of 2005. The legislation dictates very specific changes to the offer in
compromise program.

The biggest change is the new 20 percent rule. Pursuant to the new
legislation, a taxpayer that has problems with past due taxes must send
in 20 percent of the offer amount with their offer in compromise. The
amount is not refundable nor will any offer in compromise be acknowledged
if the funds are not submitted. The logic behind this legislation is
baffling to many.

When a taxpayer gets behind on tax payments, they almost always get way
behind. It is rare to find someone who is only one year in arrears.
Ostensibly, most people that miss one year take the head in the sand
approach. Fearing all kinds of trouble, they just ignore the situation.
When the next year rolls around, they don’t file again because they are
worried about alerting the IRS. As a result, the amount of taxes due
grows and grows, particularly when penalties and interest are added.
While the offer is a small percentage of this amount, the basic idea is
that you don’t have enough money to pay the bill in the first place. The
20 percent requirement seems to serve no purpose other than to give
people another reason to ignore the problem.

The offer in compromise was originally designed to get people back into
the system. Studies and statistics showed that the government would
collect far more in revenues over the years if taxpayers were given a
clean start. For all intensive purpose, the new 20 percent rule conflicts
with this purpose and hurts this program.

				
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posted:2/19/2010
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