The IRS Fresh Start program makes it easier for taxpayers to qualify for tax debt relief. However, it can still be a slow and painful process. If you are struggling to pay your taxes, you’re not alone. Millions of Americans owe back taxes and experience the headaches that come with tax problems. To address the situation, the IRS re-tooled some of its collection programs to make them more accessible and more helpful. The result was the IRS Fresh Start Initiative.
This guide will discuss what the IRS Fresh Start Initiative programs are. It will also explore how the program can help you resolve your IRS tax issues.
What is the IRS Fresh Start Initiative?
The IRS’ Fresh Start Initiative is a collection of programs that draw a roadmap for taxpayers looking to pay off their tax debt. Fresh Start program offerings include:
- Installment agreements, wherein taxpayers set up a payment plan to pay off their debt in regular monthly increments.
- Offers in compromise, wherein a taxpayer settles to pay less than their total debt.
- Tax Lien Withdrawal, wherein the IRS removes the public Notice of Tax Lien. This helps the taxpayer’s credit and makes it easier for them to qualify for loans.
- Penalty abatement, wherein the IRS waives certain late payment penalties due to qualifying circumstances.
The IRS Fresh Start program makes it easier for taxpayers to qualify for tax relief. However, it can still be a slow and painful process. Tax professionals with these companies can help you determine whether you qualify for a program, which is the best deal, and provide information on how to proceed.
Has the IRS Fresh Start Initiative helped American taxpayers?
According to a Treasury Inspector General for Tax Administration report, the Fresh Start Initiative benefits thousands of taxpayers. From 2010 to 2013, the number of Notices of Federal Tax Lien filed on taxpayers with assessed liabilities below $10,000 decreased from 488,378 to 195,009. That’s a whopping 60% drop. In addition, many taxpayers took advantage of the program’s streamlined payment programs to help them get ahead of their tax debt.
How does the IRS Fresh Start Program work?
The IRS Fresh Start Program is better understood as a tax relief toolbox that contains a set of measures designed to help individuals and small businesses. There isn’t a single form to fill in. Instead, there are a variety of tax relief measures to choose from.
There are four principal tax relief measures: tax liens relief, installment agreements, penalty relief, and offers in compromise.
How to avoid tax penalties and liens with the IRS Fresh Start Program
Tax Lien – No one wants to receive a lien notice due to a tax balance. The Fresh Start Program increased the debt threshold that triggers a tax lien. Now, you have to owe $10,000 or more before the IRS places a lien on your property. Previously, $5,000 was all it took to find yourself on the business end of a notice of federal lien. The tax debt threshold change from 5,000 to 10,000 was a significant win for taxpayers. It is also easier for taxpayers to have a lien withdrawn from their property when they are making efforts to repay back taxes. Read here for a detailed discussion of tax relief and liens.
Penalty Relief – The IRS imposes penalties and interest on taxpayers who don’t file or pay on time. These penalties can make up to 40% of a taxpayer’s debt. The good news is the Fresh Start Program includes tools that may help you reduce or remove tax penalties. These tools include relief from penalties for not filing a tax return, not paying on time, and not making tax deposits as required.
How do installment agreements and offers in compromise work under the Fresh Start Program?
Installment Agreements – The Fresh Start Initiative now makes it easier for delinquent taxpayers to set up repayment options in an installment agreement. Taxpayers can obtain installment agreements for up to 72 months online for up to $50,000 of debt without providing a financial statement. Installment plans are also available for more significant tax debts but prepare yourself to provide detailed financial information. Read this to learn more about IRS installment agreements.
Offers in Compromise – Offers in compromise are nothing new. Taxpayers have been able to negotiate a settlement with the IRS since 1998. However, the Fresh Start Program expanded and streamlined the offer in compromise program. One significant change is that the IRS only considers the next 12 to 24 months of income when assessing eligibility and calculating the minimum offer in compromise it will accept. Previously it was at least four years.
How does the IRS Fresh Start Initiative facilitate the withdrawal of tax liens?
The IRS Fresh Start Initiative tax lien program does not erase your debt. It simply gives you more options to help you reach a tax resolution.
However, the program does allow for a withdrawal of the lien from the public records in your county of residence. While not eliminating your debt, withdrawing the lien from public records may improve your credit score. This will make it easier to get a loan or make other financial arrangements that require a credit check.
To qualify for a withdrawal of your tax lien, your balance is paid in full or meets specific requirements. For example, you may be eligible if you’ve arranged a Direct Debit installment agreement to pay off your tax debt. To request a lien withdrawal, fill out Form 12277, Application for Withdrawal.
How do you qualify for the Fresh Start Initiative?
There isn’t a single set of requirements to qualify you for the IRS Fresh Start Program. Eligibility varies depending on the tax relief option you choose. However, these are the general requirements most relief applicants must meet. Tax resolution options include installment payments with a repayment term based on your financial situation.
To qualify for relief under the IRS Fresh Start Program, you must:
- Prove you do not have the money or assets to pay your tax debt.
- File all the tax returns you’re legally required to file. Even if you can’t afford to pay them, file them.
- Make all required estimated tax liabilities for the current year. This only applies to self-employed workers and small business owners.
- Make all required federal tax deposits if you own a business with employees.
- Not be in an open bankruptcy proceeding.
Beyond that, each of the Fresh Start Initiative’s individual tax relief programs has additional requirements.
How do you qualify for an installment agreement?
There are different types of installment payment agreements. With all categories of plans, there is a payment agreement established between the IRS and the individual taxpayers or businesses to satisfy the tax bill. Each one has its requirements.
To qualify for a guaranteed installment agreement (a 3-year payment plan), you must:
- Owe $10,000 or less in back taxes.
- Have filed and paid your taxes on time over the previous five years.
- Be up-to-date on filing your current taxes.
- Pay off your taxes within 36 months.
- No installment agreement within the previous five years.
- Agree to file and pay on time in the future.
To qualify for a streamlined installment agreement (a 72-month program), you must:
- Owe the IRS $50,000 or less.
- Pay by direct debit from a bank account or through payroll deductions.
- As an individual, business, or business that has gone out of business: owe less than $25,000 in unpaid taxes.
- As an individual or out-of-business sole proprietor: owe $25,000 to $50,000 in unpaid taxes.
To qualify for a partial pay installment agreement (wherein you’ll agree to pay less than your total debt), you must:
- Owe over $10,000 combined IRS tax debt, penalties, and interest.
- Have filed and paid all taxes for previous years.
- Have no marketable assets.
- Not be in bankruptcy or have an active offer in compromise.
- Let the IRS assess your living expenses and set your monthly payment based on what they decide you can afford.
How do you qualify for an offer in compromise?
There are three reasons why the IRS might offer you an offer in-compromise:
- You don’t have the income or assets to pay your tax debt in full.
- You have the income to pay in full, but it would create severe economic hardship.
- The IRS has doubts about whether you actually owe the total amount of tax. As you probably guessed, this last reason is extremely rare.
And to qualify, you must:
- File all required tax returns.
- Be up-to-date with estimated taxes (self-employed and business owners).
- Be up-to-date with federal tax deposits (businesses with employees).
- Not currently be in an open bankruptcy proceeding.
How do you qualify for penalty abatement?
To qualify for first-time penalty abatements, you must:
- Have no penalties in the three previous tax years.
- File all required tax returns.
- Pay off any due taxes.
How do you qualify for the withdrawal of an IRS tax lien?
For the IRS to withdraw a lien, you must either:
- Pay off the lien in full, comply with all tax filings in the last three years, and be current on estimated tax payments; or,
- Enter into a direct debit installment agreement. You must owe $25,000 or less for this option, and you cannot have defaulted on any Direct Debit Installment plan in the past.
In addition, you’ll have to fill out Form 12277, Application for Withdrawal. This article provides a step-by-step guide on how to withdraw an IRS tax lien notice from public records.
Read this comprehensive tax relief guide to learn more about who qualifies for tax liens relief, penalty abatement, installment agreements, and offers in compromise under the IRS Fresh Start Program.
How to pay off tax debt with an IRS Fresh Start Program?
There are two main ways to repay tax debt through the IRS Fresh Start Initiative: an installment agreement and an offer in compromise. The other tax debt relief methods are used to reduce or remove tax liens, tax levies, and penalties.
Installment Agreements (Payment Plans) are among repayment options that allow you to pay your taxes in full over time. There are four different types of installment payment agreements:
- Guaranteed: Tax debts of less than $10,000 repaid in 3 years or less.
- Streamlined: Tax debts of less than $50,000 repaid within six years.
- Partial Pay: This is similar to an offer in compromise. Taxpayers make monthly payments until the time the IRS has to collect taxes expires.
- In Business: Tax debts of less than $25,000 paid in 24 months or less.
- Routine: Larger amounts and more extended repayment periods.
In 2018, the IRS approved 994,777 installment agreements, making it the most widely used tax debt relief payment option under the IRS Fresh Start Initiative.
An Offer in Compromise is an attractive option for people with large tax debts and little in the way of assets and income. If approved, a compromise offer can reduce or even remove the tax debt of a delinquent tax. Since 2012, as part of the Fresh Start Initiative, there is no dollar limitation for a taxpayer requesting a compromise agreement. The IRS has also revised financial analysis procedures and increased allowable living expenses to make the program accessible to more taxpayers. In 2018, the IRS approved 24,000 offers with a total value of $261.3 million.
How to apply for IRS Fresh Start Program?
Each tax debt relief program under the IRS Fresh Start Program umbrella has a different application route. Some programs you can apply for online and only take a few minutes, while others can take up to two years to get approved.
To illustrate, the IRS requires taxpayers, or their tax representatives, to complete a Form 656 and a 433A to start the application process for an offer in compromise. Applying for a payment plan can be done online or by filing Form 9465. Some programs, such as installment programs, have several ways to apply depending on whether you are an employee or a business owner and how much you owe. If you have a large tax debt ($5,000 or more), consult with a tax firm before applying for a relief program.
Do you need a tax professional to help you navigate the IRS Fresh Start Initiative?
If you feel confident in your ability to negotiate and in your knowledge of tax law, you can take advantage of the IRS Fresh Start Initiative on your own. However, a tax professional can help walk you through the process and direct you to your best option.
A good tax professional will consider your entire financial situation. Based on these findings, they can more accurately determine which IRS Fresh Start Initiative program will work for you.
Most programs require you to volunteer detailed financial information, which can be used against you in a future audit. It’s smart to check with a tax attorney before providing sensitive information to the IRS.
You have probably seen TV ads for various tax pros and relief companies. Before choosing a firm, do your homework. You are looking for a reputable company that will help identify repayment options and decrease your total liability. The IRS can use wage garnishments and a host of other tactics to collect an outstanding tax debt. The sooner you gather your information and start making monthly payments, the less interest you will accrue. You will also avoid the potential wage garnishments or other collection efforts.
Advantages of hiring a tax professional
Additionally, a tax professional will help you determine which type of relief to pursue. The IRS has one goal: to collect as much money as possible as soon as possible. A tax professional, on the other hand, has your best interests in mind. Their only goal is to help you handle your tax debt.
A tax professional can also help you avoid penalties, interest and lower your tax liability. Also, they may be able to negotiate a better payment plan for you, helping you get back on track. Before spending money you don’t have on expensive retainer and consultation fees, consider hiring a tax relief firm with tax attorneys on staff. These firms offer the advantages of formal representation without any upfront fees. If you need help right now, get a free consultation today and find out what relief program the IRS may have for your tax situation.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.