Changes to IRS Tax Settlement Rules
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
Changes to IRS Tax Settlement Rules
Summary
The IRS has been actively helping people settle overdue taxes to regain good standing. Recently, there have been significant changes to this program.
Overview
In an effort to assist taxpayers in resolving overdue taxes, the IRS established the offer in compromise program. This initiative allowed individuals with tax debts to proactively address their situation, often resulting in reduced penalties and interest.
Recent Changes
Starting July 16, 2006, new changes took effect due to the Tax Increase Prevention and Reconciliation Act of 2005. This legislation, pushed by Congress, introduced specific modifications to the offer in compromise program.
Key Change: The 20 Percent Rule
Under the new rule, taxpayers must submit 20 percent of their offer amount along with their offer in compromise. This payment is non-refundable and required for the offer to be considered. Many find this rule perplexing, as it seems to counteract the program’s original intent.
Impact on Taxpayers
Taxpayers often fall behind for several years. The fear of IRS repercussions can lead them to avoid filing future returns, causing their debt to grow due to added penalties and interest. The new 20 percent requirement could discourage people from taking action to resolve their debts, countering the program’s goals.
Conclusion
The offer in compromise program aimed to bring taxpayers back into compliance, providing a fresh start that ultimately increased long-term revenue. The introduction of the 20 percent rule challenges this purpose, potentially undermining the program's success.
You can find the original non-AI version of this article here: Changes to IRS Tax Settlement Rules.
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