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The IRS Fresh Start program is tailored for taxpayers who are struggling with tax debts. Most consumer debts can be erased through bankruptcy, yet this isn’t a viable option with tax debts. If you can’t make payments on the money you owe the IRS, you may soon find yourself in a difficult position.

Taxpayers who are delinquent on tax debt payments risk the seizure of their assets, including wages, bank accounts, retirement income, and social security benefits as part of collection efforts by the IRS. With the creation of the Fresh Start Program by the IRS, taxpayers who are overwhelmed by their tax bills can manage and pay them off in a more convenient manner.

What is the Fresh Start Program?

In 2011, the IRS created an initiative to help the many filers who had substantial unpaid taxes consolidate their tax debts and settle them in an orderly way. The program was intended to help taxpayers with back taxes by raising the dollar threshold for tax liens to $10,000.

The Fresh Start program also aimed at simplifying and speeding up the process of having levies and liens removed after the payment of taxes. Once outstanding tax balances have been paid, taxpayers can now have liens removed in as little as 30 days after requesting.

Ultimately, the IRS Fresh Start program is intended to lighten the load for diligent taxpayers who are proactively making the effort to settle their tax debt. The program offers a variety of channels through which one can achieve tax debt relief. Before getting started, it is important to know who qualifies for fresh start initiative.

Eligibility for the IRS Fresh Start Program

The Fresh Start IRS program was intended to be helpful to every taxpayer. However, there are important things to consider before choosing a channel that best suits your situation.

One box you’ll need to tick before enrolling relates to current tax returns. Before the IRS considers you for the Fresh Start program, you’ll have to be current with all tax returns.

Additionally, the IRS needs to establish that a taxpayer will be accountable. For this, it requires that taxpayers have the correct withholdings amount for the current year. Some other basic requirements for qualification include:

A 25% drop in net income for self-employed individuals
Annual earnings of no more than $100,000 for single filers
Annual earnings not exceeding $200,000 for joint filers
An annual tax balance of less than $50,000 before end-of-year

So, how does the IRS fresh start program work, and how does it offer tax debt relief? Below, we look at what’s included in the Fresh Start program.

Offer in Compromise (OIC)

With an offer in a compromise, taxpayers can settle their tax debts by paying less than the full amount they owe. It’s a legitimate option for those who can’t pay their full tax liability or those who will suffer financial hardship if they make full payment.

The IRS considers a taxpayer’s unique circumstances, including income, expenses, ability to pay, and asset equity. In most cases, an offer in compromise will be approved by the IRS if the amount offered represents the most of what could be collected through other collection activities and within a reasonable period.

Before filing an Offer in Compromise application, ensure that you have filed all the required tax returns and made the required estimated payments. If you can pay your tax debt in full through any other means, the IRS will likely reject your offer.

If you think you’re eligible for the Offer in Compromise program, you should consult with a tax expert to ensure that you prepare a well-completed offer package. This would include filing the right forms, paying the application fee, and making the required initial payments.

Forms of Payment

For an offer in compromise, you could choose to make a lump sum cash payment or periodic payment. If you choose a lump sum cash payment, your IRS fresh start program application would include an initial payment of 20% of the total offer amount. If your offer is accepted, the remaining balance due on your offer is to be paid five or fewer payments.

For periodic payment, you still have to make an initial payment upon application, with the balance payable in monthly installments.

During the evaluation process of your offer, the non-refundable fees and payments will be applied to your tax liability, for which you have the freedom to designate payments to a specific tax debt and tax year. The IRS also suspends other collection activities while the offer is being evaluated.

If you have an existing installment agreement, the IRS doesn’t require you to make payments on the same. Your offer is automatically accepted where the IRS doesn’t decide within two years of the receipt date.

If your offer is accepted, any refunds due within the year of acceptance are applied to your tax debt. What’s more, federal tax liens aren’t released until the terms of your offer are satisfied.

Installment Agreement

Taxpayers who are unable to pay back their entire tax bills when they are due can take advantage of installment agreements. Here, a taxpayer or the IRS determines the amount they can pay as a partial payment, the amount they can pay each month, and the preferred date for making this payment.

The IRS encourages qualified taxpayers to make payments through the direct debit method. This way, your payment is electronically withdrawn from your chosen financial institution account. In 2018, the IRS changed the installment agreement processing criteria to reduce taxpayer burden and increase agency efficiency.

To set up streamlined installment agreement payments, taxpayers must be:

Sole proprietors who are out of business and individuals with an assessed tax balance, interest, or penalties up to $50,000
Taxpayers who are out of business and have assessed tax balances up to $25,000
In-business taxpayers with assessed balances on income tax only up to $25,000

Taxpayers must also be current with filing the required returns to be eligible for a streamlined installment agreement program. Through this agreement, a taxpayer can make payment over 72 months or the number of months necessary to fully satisfy the tax liability.

Currently Not Collectible

Taxpayers who cannot pay their tax debt may have their account reported as currently not collectible by the IRS. This temporarily delays the collection process until their financial condition improves but does not erase the tax debt.

Approval for this request is subject to filling some forms and providing proof of financial status, including information about your monthly income and expenses, and assets. Delaying collection increases your debt since interest and penalties are charged until you fully pay the debt.

During the temporary delay, the IRS might also file a Notice of Federal Tax Lien to safeguard the government’s interest in your assets.

Penalty Relief

Under the Fresh Start, taxpayers who have made an effort to comply with law requirements but couldn’t meet their tax obligations due to conditions beyond their control may qualify for penalty relief.

Some of the penalties eligible for relief include failure to file a tax return, pay on time, or deposit certain taxes as expected. Depending on your circumstance, you may receive any of the following types of penalty relief from the IRS:

Reasonable Cause
Statutory Exception
Administrative Waiver and First Time Penalty Abatement

Under reasonable cause, the IRS considers the facts and circumstances of your situation to establish that you used all the prudence and business care to meet your tax obligations but were still unable to do so.

The IRS will consider any sound reason for failing to file a tax return, pay tax when due, or make a deposit. Such reasons may include:

Natural disaster, fire, casualty, or other disturbances
Death, incapacitation, serious illness, or unavoidable absence of a taxpayer or a member of their immediate family
Inability to access records
Any other factor that may be deemed relevant by the agency

Bottom Line

Under the Fresh Start initiative, there are various IRS tax relief programs, including an offer in compromise, installment agreement, penalty relief, and currently not collectible. Depending on your circumstances, the IRS will determine whether you qualify for any of these programs. Through these programs, you can have penalties erased, delay collections, and pay your tax debt over an extended period in a more convenient fashion.

Fresh Start Program: Taking Advantage of IRS Tax Debt Relief Initiatives