The Internal Revenue Service has agreed to relax its policies for low-income taxpayers trying to settle their tax debts and still get tax refunds, after the head of the Taxpayer Advocate Service asked for relief.

National taxpayer lawyer Erin Collins announced the policy change in a blog post On Monday. It applies to taxpayers who have accepted offers in compromise to settle their unpaid tax debts with the IRS and adds additional leeway on the ability to qualify for Bypass Compensation Refunds, or OBRs. OBRs allow taxpayers facing financial difficulties to receive a portion of their tax refund to pay for necessities such as utility bills and to offset the balance of their tax obligations. The new procedures extend the period during which low-income taxpayers can claim the OBR.

Additionally, the IRS will not apply current year tax refunds to the tax payable agreed under the Offer in Compromise, or OIC. As of November 1, 2021, the IRS will no longer offset or collect refunds for the calendar year in which the OIC was accepted on a Form 656. However, there is an important caveat: If a taxpayer and the IRS run the OIC based on information known at the time of settlement and the taxpayer later files an amended return requesting a refund for a year not covered by Form 656, the IRS can still compensate this reimbursement.

The changes come as many families still grapple with the economic fallout from the COVID-19 pandemic and inflation pushing up the prices of everyday consumer goods like food and gasoline. The IRS provided the expanded child tax credit this year to help struggling families, but the tax credit is due to end in December, unless Congress extends it by passing the Build Back Better Act, which is met with resistance from Republicans and some Democrats.

Another important change in policy will allow taxpayers who are suffering from financial difficulties to apply for an OBR while the OIC application is still pending. This would allow them to keep their tax refunds as long as they meet the criteria of the Internal Revenue Manual.

“For taxpayers facing economic hardship, the anticipation of a repayment can be the safety pin that maintains a family’s ability to meet basic expenses, especially for taxpayers who depend on credit. Earned Income Tax (EITC) or Supplementary Child Tax Credit (ACTC). ), ”Collins wrote. “… The loss of a tax refund can fuel financial chaos and prevent the taxpayer from meeting basic expenses. An accepted OIC can lead to financial security.

In his blog post, Collins also offers some recommendations to the IRS to help educate taxpayers about the benefits of OIC and OBR programs.