New IRS Fresh Start Program a Huge Help to Struggling Taxpayers

In May, the IRS rolled out new features to its “Fresh Start” program that will allow thousands of taxpayers to clear up their tax problems and move on. Under the new program, taxpayers who previously could not qualify for relief will be able to resolve their tax debts in two years or less, and often for a fraction of the outstanding liability.

This is an outstanding development for taxpayers struggling with back tax liabilities.

The centerpiece of the new program is a dramatic change in the evaluation of offers in compromise, which essentially are offers by taxpayers to satisfy their tax liabilities in full for an amount based on the income they’ll have available after payment of necessary living expenses. Previously, the IRS sought a payment based on four or five years’ worth of available income. Under the new rules, however, the IRS will seek payments based on only two years’ worth of available income and, if a taxpayer can obtain the funds to pay immediately, only one year’s worth of available income. The new program also increases the amounts allowable for various living expenses in determining a taxpayer’s income available to pay tax, and also allows delinquent state tax liabilities to be taken into account.

Anybody struggling to pay back taxes should explore the possibility of filing an offer in compromise under the IRS Fresh Start program.

     All-Time Low IRS Minimum Interest Rates Create Rare Planning Opportunities

Many tax planning strategies, especially estate tax planning strategies, involve loans between family members or trusts for their benefit. Such loans typically must carry an interest rate at least equal to the “applicable federal rate,” or AFR, to be respected for tax purposes. Often, the benefit the strategy offers increases as the AFR decreases.

The AFR just reached an all-time low. For example, on a nine year loan, the minimum interest rate is less than one percent per year -- .92%.

Because the AFR currently is so low, several estate tax planning strategies could work exceptionally well if you’re concerned about the future of the estate tax after the 2012 election. If you’re seeking to fulfill charitable objectives in a tax-advantaged manner, this might be your golden opportunity to do so.

July 12, 2012


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