A Summary of the IRS Fresh Start Initiative

irs fresh start initiative summary

Recently, you may have heard a lot about the Fresh Start Initiative in radio ads, tv advertisements, online and more---like it is some recent change the IRS made. In reality, the IRS officially launched the Fresh Start initiative (FSI) in 2011 in order to help taxpayers get a "fresh start" with their tax debt.  The goal of the program was to help taxpayers and small businesses with paying back taxes and avoiding tax liens. It was expanded in 2012, with new changes to existing resolutions and new steps to help struggling taxpayers get back on their feet.

What Changes Did the IRS Make with the Fresh Start Initiative?

The IRS made many changes with the launch of the Fresh Start Initiative. Some of these changes occurred after the official release. Here is a summary of those changes.

Tax Lien Changes

The IRS made changes to their policies regarding tax liens. Here are some of the changes summarized:

  • The FSI increased the tax debt threshold at which the IRS will file a Notice of Federal Tax Lien (Letter 3172). The threshold amount went from $5,000 to $10,000. It is important to remember that the IRS (at its discretion) can file a tax lien on someone below $10,000.
  • The IRS also made changes regarding the withdrawal of tax liens. What is a tax lien withdrawal? A tax lien eliminates the Notice of a Tax Lien publicly. These policy changes made it easier for individuals to get "back on their feet," and get a tax lien withdrawn in these specific ways:
    1. The lien was paid off or the statute of limitations (CSED) was reached. Although IRS liens are generally self-releasing, they don't always come off. Therefore, a taxpayer in this situation needs to be in filing compliance for the past three years and in compliance with estimated tax payments (if a business or self-employed) before they can request a lien withdrawal.
    2. An individual can set up a 60-month direct debit installment agreement (aka DDIA or SIA) if their balance is $25,000 or below. Direct-debit means that the IRS deducts an individual's bank account or wages for the monthly payment. After three consecutive direct debit payments, the lien withdrawal can be requested.
    3. An individual with a regular installment agreement that is converted to a DDIA can request a lien withdrawal after 3 successful payments.

Installment Agreement Changes

The IRS made installment agreement policy changes as well with the Fresh Start Initiative.  Below is a summary of the changes they made:

  • The FSI increased the threshold for which an individual can qualify for a Streamlined Installment Agreement from $25,000 to $50,000.
  • The FSI also expanded the tax debt amount threshold for small businesses to qualify for a DDIA from $10,000 to $25,000. Small businesses can pay down balances above $25,000 in order to qualify for a DDIA.

Offer In Compromise (OIC) Changes

The IRS streamlined the OIC program, making it easier for more taxpayers to qualify. Particularly, the FSI made changes regarding the financial analysis used to determine which taxpayers qualify for an OIC.

  • Lump Sum OIC Changes - The IRS now looks at only one year of future income versus four years.
  • Short-Term Periodic - The IRS now looks at two years of future income versus five years.

The Fresh start program also expanded the streamlined OIC program by:

  • allowing taxpayers making up to $100,000 to apply
  • allowing or increasing living expense allowances to include state taxes, student loans, and other debts
  • allowing with an OIC the repayment of loans against assets  if the loan was used to fund the OIC and any financial obligations related to preparing the OIC (such as legal fees).

Currently Not Collectible Changes

When a taxpayer is in this status, enforcement actions cease. Generally, the taxpayer will need to provide sufficient documentation to justify this status with the IRS. The FSI made the process easier for individuals who owe $10,000 or less to qualify for a CNC by easing documentation requirements.

The Fresh Start Initiative changes has greatly helped taxpayers "get back on their feet." In fact, we believe the OIC acceptance rate is at an all-time high because of the FSI changes regarding Offer in Compromises.

Whatever your situation, our tax professionals are very experienced with the IRS Fresh Start Initiative. For assistance, request a free consultation today.