First Person: Get a Fresh Start in 2013 With Expanded IRS Tax Relief Programs

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The last day of 2012 is upon us. With the federal government teetering on the edge of the fiscal cliff, and the IRS in a holding pattern awaiting word on potential tax hikes and credit expirations, it's understandable why taxpayers may voice hesitancy to address their tax problems.

Still, with the beginning of a new year, now is as good as ever to make 2013 the year you emancipate yourself from your tax delinquencies. Like carnival midway hawkers, radio and television spots are pushing hard in an attempt to get you to turn over your mounting debt problems to them.

For a price, they will make it all "go away." Possibly, but unlikely. As always, the IRS encourages individuals to contact them directly, as there are no special options available to these third party representatives that are not directly offered to Joe Taxpayer.

With the above in mind, here are a number of the IRS programs to be had; some have been rolled out within just the past year or so under the Fresh Start Initiative incentives. Take advantage of these opportunities to get back on track in 2013.

Currently not Collectible

I heard a radio advertisement the other day instructing taxpayers to sign up with them for the IRS "CNC" program. But they failed to mention what the acronym even stands for. CNC, or Currently not Collectible, is an internal term used to denote a taxpayer whom the IRS has determined is financially unable to pay their tax bill. This is not new, and it is not something that will expire.

The IRS determines this by asking questions, and in some cases, after being provided with proof of income and or expenses. For larger debt, if a financial analysis shows basic expenses exceed income, or if a taxpayer owes a smaller debt and is unemployed or only receiving Social Security benefits, the IRS will defer collection. The balance still exists, and penalty and interest accrue, but unless your financial situation improves, the IRS will not demand payment.

You will get an annual reminder notice, and any future refunds will be offset to the balance, but all other actions to collect will cease.

Lien filing adjustments

The IRS formally bumped up the dollar amount for lien filings last year. A Notice of Federal Tax Lien is the government's legal claim against real property that you have or acquire. It is filed when you neglect or fail to pay a tax debt, or if a long-term payment plan has been entered into. The new filing threshold is $10,000, doubled what it historically had been for many decades. That means that certain long-term payment plans are now available without any impact to your credit.

Requesting lien withdrawal

If you owe the IRS $25,000 or less, have established a payment plan, and are agreeable to having your monthly installment agreement payment debited each month from a checking or saving account, you can now request that the IRS withdraw a previously filed lien.

As with all payment plans, you need to be in full compliance with your tax filing. To request a lien withdrawal, your payment plan must full pay the balance within 60-months. Once you have made at least three consecutive debit payments, the IRS will consider your request. Use Form 12277, Application for Withdrawal. In item 11, "Reason for requesting withdrawal," check the third box, "The taxpayer is under a Direct Debit Installment Agreement. "

In-Business trust fund express agreements

Similar to the above requirements, the IRS is offering business taxpayers the opportunity to enter into a modernized payment plan. Trust fund taxes are payroll taxes, and if you owe less than $25,000 on your quarterly Forms 941, and agree to a direct debit plan, the IRS will waive the lien filing requirement and generally will not ask for any financial verification.

Streamlined installment agreements

According to irs.gov, the "Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes. Under the Fresh Start initiative, the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months."

If your balance and payment plan falls into this category, and if you once again are agreeable to a direct debit plan (a must for balances over $25,000), the IRS will generally grant the payment plan absent a lien filing and without having to go through your monthly income versus expenses.

Fresh start Offer in Compromise

The Offer in Compromise (OIC) program is the so-called "pennies on the dollar" approach you hear about in commercials. Again, this is designed for a taxpayer to do themselves, and the IRS has made the acceptance of an offer much more likely under revised guidelines.

According to irs.gov, OIC changes include:

  • Fewer requests for follow-up financial information, much of which can now be done by phone
  • Greater flexibility when considering your ability to pay and making a determination of your assets
  • Increased allowable living expenses
  • Reduction in the amount of potential future income that must be included in your offer

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