IRS offers tips for strapped taxpayers

BIRMINGHAM, Ala. - Aware that the economic downturn has affected many people, the Internal Revenue Service urges taxpayers in difficult financial situations to take advantage of tax breaks and increased IRS relief options.

"The IRS is willing to work with taxpayers who are having a hard time making ends meet," said IRS spokesman Dan Boone. "The key is to contact the IRS as early in the process as possible."

Here are some ways the IRS can help:

Mortgage Workouts and Foreclosures: For most homeowners, these are now tax-free. Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million ($1 million for married filing separately).

Online Payment Agreement: Filers who owe the IRS $25,000 or less can apply online for an IRS payment agreement. The application can be found by visiting IRS.gov and typing OPA (Online Payment Agreement) into the search box.

Added Flexibility for Missed Payments: The IRS is allowing more flexibility if you have an existing installment agreement and are having difficulty making payments because of a job loss or other financial hardship.

Additional Review of Home Values for Offers in Compromise: The equity you have in real property can be a barrier to an offer being accepted by the IRS. But the IRS recognizes that in today's market the real-estate valuations used to assess your ability to pay are not necessarily accurate and may be able to reevaluate your information to see if accepting an offer is appropriate.

Prevention of Offer in Compromise Defaults: If you are unable to meet the periodic payment terms of an accepted OIC, contact the IRS office handling the offer for available options to help avoid a default.

Postponement of Collection Actions: If you have recently encountered a job loss or other financial problem, IRS may be able to suspend collection in some situations without documentation to help minimize your financial burden.

Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons.

Lien Relief: If you are looking to refinance or sell a home and there is a federal tax lien filed, the IRS may be able to make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Or the IRS may be able to discharge its claim if the home is being sold for less than the amount of the mortgage lien.

Visit www.irs.gov or call 1-800-829-1040 for more information about any of these options or issues.