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Tax Law Center Blog

Tax Law Center Blog

by cflathers

It is getting easier to strike a deal with the Internal
Revenue Service (“IRS”). Over the last two years, the IRS has
implemented its “Fresh Start Initiative” program that makes
it easier for taxpayers to pay back unpaid federal taxes and
avoid tax liens. Although the Fresh Start program was an-
nounced by the IRS over two years ago, very few taxpay-
ers are aware of the remarkable benefits that are available
to them through the program or the recent expansions that
favor taxpayers even further. The following highlights some
of the changes made by the IRS in the Fresh Start program:

Higher lien filing thresholds. Under Internal
Revenue Code (“Code”) § 6321, when a taxpayer
fails to pay a tax liability after notice and demand,
a lien irises that attaches to all of the taxpayer’s
property and rights to property. The Fresh Start
program has increased the amount taxpayers can
owe before the IRS generally will file a Notice of
Federal Tax Lien (“NFTL”). Currently, that amount
is $10,000. Additionally, the program has modified
procedures making it easier for taxpayers to ob-
tain lien withdrawals, which ,are more favorable
than simply a lien release because a withdrawal
requires the tax laws be applied as if the NFTL had
not been filed. The IRS will now allow lien with-
drawals once a taxpayer enters into a direct debit
installment agreement or upon full payment of the
taxes. Taxpayers must request this in writing using
Form 12277, Application for Withdrawal.

• Installment agreements. The Fresh Start program
significantly expanded access to streamlined in-
stallment agreements. Now,.:.individual taxpay-
ers who owe up to $50,000 (previous limit’ was
$25,000) can pay through monthly direct debit
payments up to six years. Typically, the IRS will

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Hut tequile U Lnurougn ‘manual statement to set
up a direct debit installment agreement. Taxpay-
ers can use Form 9645, Installment Agreement, to
apply. Also, the IRS will allow a lien withdrawal
when the balance is less than $25,000, the taxpayer
enters into a direct debit installment agreement,
and the taxpayer requests the withdrawal.

Liberalized offer in compromise terms. Lastly,
but not definitely not least, the Fresh Start Ini-
tiative has generously expanded the terms of the
IRS’ offer in compromise (“OIC”) program. Under
Code § 7122, the IRS will accept an OIC when: 1)
the taxpayer is unable to pay the tax; 2) there is
doubt as to the taxpayer’s liability for the tax; or 3)
a compromise would promote effective tax admin-
istration because collection of the tax would cause
economic hardship for the taxpayer, or there are
compelling public policy or equity considerations
that provide a sufficient basis for compromising
the liability. As a result of the Fresh Start program,
the IRS will now calculate a taxpayer’s offer that
will be paid in five or fewer months by looking at
only one year of future income, rather than four
years. For offers paid in six to 24 months, the IRS
will now look at only two years of future income,
rather than five years. These policy changes have
significantly increased the number of taxpayers el-
igible for an OIC and drastically reduced the dollar
amount of accepted OIC’s. In its latest expansion
of the program, the IRS revised the calculation for
the taxpayer’s future income by allowing taxpay-
ers to repay their student loans and state and lo-
cal delinquent taxes and expanded the amount of
allowance living expenses, among other changes.,

Offshore Voluntary Disclosure Program
In 2009, the IRS announced an Offshore Voluntary
Disclosure Program (“OVDP”) to enable taxpayers to re-
port previously unreported foreign account income without
fear of criminal prosecution. In 2011, the IRS announced a

‘Association December 2014 — COMMUNIQUÉ

second OVDP. In 2012, the IRS announced a third OVDP
which was similar to the 2011 OVDP, but had no partici-
pation deadline. The IRS also provided streamlined filing
compliance procedures for certain “low risk” nonresident
U.S. taxpayers.
In June of this year, the IRS issued IR 2014-73, which
made key expansions in the streamlined procedures. On
October 16, 2014, the IRS clarified its streamlined offshore
account compliance program procedures to include U.S. cit-
izens residing in the U.S. the IRS calls this the streamlined
To use this program, an individual U.S. taxpayer resid-
ing in the U.S. (or his estate) must:
1. be a U.S. resident living in the U.S. for the past
three years;
2. have previously filed a U.S. tax return (if required)
for each of the most recent three years;
3. have failed to report gross income from a foreign
financial asset and pay tax as required by law and/
Or failed to file certain required forms such as For-
eign Bank Account Reports (FBARs); and
4. have committed the failures in (3) above as a result
of non-willful conduct.

In general, U.S. taxpayers who want to come into com-
pliance under the new streamlined program must
1. for each of the most recent three years for which
the U.S. tax return was due, file amended tax re-)
turns, together with all required information re-
turns and pay the tax due pluss interest;
2. for each of the most recent six”years for Which the
FBAR due date has passed, file any ‘delinquent
FBARs online; and
3. pay a miscellaneous offshore penalty equal to five
percent of the highest aggregate balance/value of
the taxpayer’s foreign financial assets.