IRS changes offer relief to delinquent taxpayers

— -- The IRS unveiled a series of initiatives Tuesday aimed at helping people who can't pay their taxes because they're unemployed or experiencing other financial hardships.

As the economic downturn worsens, the IRS expects to see an increase in delinquencies among taxpayers who have ordinarily paid taxes on time, IRS Commissioner Doug Shulman said. Steps the IRS is taking:

•Help more taxpayers whose homes have declined in value qualify for an Offer in Compromise. The Offer in Compromise program allows taxpayers to negotiate a reduction of their tax debts.

To qualify, however, taxpayers must convince the IRS that they've exhausted all financial resources available to pay their taxes. Taxpayers with home equity are typically turned down, because the IRS assumes they can use a second mortgage to pay their taxes.

In recent months, however, many homeowners have seen their home equity disappear, Shulman said. That information isn't necessarily reflected in the home valuations on file at the IRS, he said. For that reason, the IRS will review applications from taxpayers who were rejected based on their home equity.

•Provide more flexibility for taxpayers who miss installment payments. Taxpayers who don't qualify for an Offer in Compromise can ask the IRS to set up an installment plan. These plans allow taxpayers to pay their debt in monthly installments, plus interest. In the past, however, the entire balance would become due if a taxpayer missed a payment.

Now, the IRS will be more lenient with taxpayers who have a good record of making payments. The IRS may allow those taxpayers to remain on the installment plan, even if they skip a payment or pay a reduced amount.

•Postpone collection actions against taxpayers experiencing financial hardship. IRS employees have been given the authority to suspend phone calls and collection letters to taxpayers who recently lost their jobs, rely on income from Social Security or welfare, or are facing large medical bills.