Ever heard the saying: “If I owe you a dollar, I have a problem; but if I owe you a $1 million, the problem is yours?” Well, let’s just say the IRS has a problem with many taxpayers. The IRS Fresh Start program is the IRS’s latest attempt to fix some of those problems.
Millions of taxpayers fall into debt with the IRS every year. If you are one of them, know that the IRS has tax relief programs that can help. We certainly need the help. Currently, taxpayers owe the IRS over $3 billion in back taxes. If you are struggling to pay your taxes, read on. The Fresh Start Program, also known as the Fresh Start Initiative, may be just the help you need to get right with the taxman. Tax relief programs, like the Fresh Start Program can help you repay, reduce, and even wipe clean your back taxes.
In this article
- 1 What is the IRS Fresh Start Program?
- 2 How does the IRS Fresh Start Program work?
- 3 How to avoid tax penalties & liens with the IRS Fresh Start Program
- 4 How do installment agreements and offers in compromise work under the Fresh Start Program?
- 5 How to qualify for IRS Fresh Start Program?
- 6 How to apply for IRS Fresh Start Program?
- 7 How to pay off tax debt with an IRS Fresh Start Program?
- 8 How much does the IRS Fresh Start Program cost?
- 9 How to qualify for a free consultation with a senior tax professional
What is the IRS Fresh Start Program?
The IRS Fresh Start Program is a tax relief initiative designed to help struggling taxpayers get back on track with their taxes. The new initiative is an expansion of previous IRS tax relief initiatives that started with The IRS Restructuring and Reform Act of 1998. Previous requirements and limitations have been loosened or removed altogether so more taxpayers can benefit from tax relief.
The main focus of the IRS Fresh Start Program is to help taxpayers repay their taxes and avoid tax liens. People who are buried in overwhelming debt can also use the Fresh Start Initiative to remove the tax debt they can’t afford to pay from their account.
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. Consult with a tax relief professional to determine which one is best for you.
There are four principal tax relief measures: tax liens relief, installment agreements, penalty relief, and offers in compromise.
How to avoid tax penalties & liens with the IRS Fresh Start Program
Tax Liens – 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 will place a tax lien on your property. Previously, $5,000 was all it took to find yourself on the business end of a tax lien. It is also easier for taxpayers to remove tax liens 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. This includes 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 an installment agreement. Taxpayers can obtain installment agreements for up to 72 months online for up to $50,000 of debt without having to provide a financial statement. Installment agreements are also available for larger 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 major 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 four to five years. Read more on how to negotiate an offer in compromise.
How to qualify for IRS Fresh Start Program?
There isn’t one set of requirements to qualify for the IRS Fresh Start Program. Eligibility requirements vary depending on the tax relief program you choose. However, these are the general requirements most tax relief applicants must meet.
Warning: Just because you qualify for a tax relief program doesn’t mean you should apply for it. Tax relief programs sometimes come with strings attached and can cause more harm than good. For instance, applying for tax relief under the Fresh Start Program may require you to agree to extend the 10-year statute of limitations on tax collections or provide self-incriminating financial information. Hire a tax professional to help you decide which tax relief measure is best for you.
To qualify for tax 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 payments for the current year. This only applies to self-employed workers and small businesses owners.
- Make all required federal tax deposits, if you own a business with employees.
- Not be in an open bankruptcy proceeding
Individual tax relief programs have additional requirements. For instance, to apply for a streamlined installment agreement you must owe $50,000 or less. To qualify for an offer in compromise, you must provide detailed financial information by completing IRS Form 433A.
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 apply for IRS Fresh Start Program?
Each tax 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 relief firm before applying for a tax relief 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 relief methods are used to reduce or remove tax liens, tax levies, and penalties.
Installment Agreement (Payment Plans) allow you to pay your taxes in full over time. There are four different types of installment 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 6 years
- Partial Pay: 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 longer repayment periods
In 2015, the IRS approved 2.99 million installment agreements, which makes it the most widely used tax 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, an offer in compromise 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 an offer in compromise. The IRS has also revised financial analysis procedures and increased allowable living expenses to make the program accessible to more taxpayers.
Wondering how to make a successful offer in compromise with the IRS? This page gives detailed directions on how to calculate an offer in compromise the IRS can live with.
How much does the IRS Fresh Start Program cost?
The IRS Fresh Start Program itself doesn’t have a specific fee or cost attached to it. However, the tax relief measures that make up the IRS Fresh Start Initiative do involve fees and costs.
To illustrate, an offer in compromise requires a $186 filing fee (2016) and you must include a down payment of up to 20% of your back taxes. Installment agreements also come with setup fees that vary depending on the type of payment plan you choose. As of 2016, a direct debit agreement costs $52. If you don’t pay directly from a bank, the fee is $120.
For a detailed discussion of the cost and consequences of each tax relief method, read this comprehensive tax relief guide.
Remember the application cost is only one factor when considering the best tax relief option for you. The cheapest option could be the most expensive in the long run. The same principle applies to professional tax representation.
Tax law gives taxpayers the right to be represented by a tax attorney, CPA, or enrolled agent when facing the IRS. Hiring a tax professional is not cheap and some taxpayers may be tempted to deal with the IRS themselves. Unfortunately, the cost of dealing directly with the IRS can be devastating for taxpayers with substantial debt or who are facing tax evasion charges.
How to qualify for a free consultation with a senior tax professional
Choosing the right tax relief professional is not an easy. There are tax relief companies that will charge outrageous fees but offer little help. Figuring out the good guys from the crooks can be a challenge. This article provides more information on whether you should hire a tax attorney to negotiate your tax debt with the IRS.
SuperMoney has reviewed the main tax relief companies and selected the best firms in the business. We based our analysis on the following criteria:
Tax Attorneys: We only select companies that have licensed tax attorneys on staff. Companies that also employ CPAs are given preference.
Coverage: Only firms that offer nationwide coverage qualify
Accreditations: Only companies accredited by the BBB are considered.
Financial Strength: We only include firms that are financially sound and can provide a proven track record of success.
Flexible Payments: All our partners offer flexible payment options and reasonable fees.
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