Are you struggling with tax debt? If you are, you’ve probably heard about the IRS’ Fresh Start Program and may be looking for further information on whether this scheme can benefit you or not. The answer to this question will depend entirely on you and your personal circumstances. But we can get to the bottom of the matter to give you a solid answer! Here’s a little more information on the Fresh Start Program, who can qualify, what help the initiative could provide you with and how it can help to get you out of your tax debt!
What is the IRS Fresh Start Program?
The IRS officially launched the Fresh Start Program back in 2011 with the aim of helping 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. Changes implemented by the program largely revolved around tax lien, installment agreements, offer in compromise and currently not collectible charges.
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 These policy changes made it easier for individuals to get "back on their feet," and get a tax lien withdrawn in these specific ways:
- 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.
- 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.
- 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 Program. 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
An Offer in Compromise (also frequently referred to as an “OIC”) is an agreement that can be made between you and the IRS that settles your tax liabilities for less than the full amount that you owe. Essentially, you can come to an agreement with the IRS that sees you pay some of your debt off, but not all of it. Generally speaking, the IRS won’t accept an OIC claim if they believe that you are able to pay your debts in full or through a payment agreement. However, if they take a look at your taxpayer’s income and assets and conclude that you are unlikely to actually be able to pay what you owe, they may be lenient and approve an offer in compromise - an alternative sum that is more reasonable and achievable. Of course, you will have to legally accept and agree to the offer.
Now, this may seem unusually lenient. However, the organization has put these common-sense changes in place, taking a realist approach to real-world situations, helping struggling individuals to resolve their tax problems in as little as two years, as opposed to the average four or five years it often took people to get back on their feet in the past.
Changes to the program include:
- Revising the calculation for your future income
- Allowing you to repay any outstanding student loans
- Allowing you to pay state and delinquent taxes
- Expanding your allowable living expenses (both in terms of categories and amount)
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 Fresh Start Program made the process easier for individuals who owe $10,000 or less to qualify for a CNC by easing documentation requirements.
Who Is Eligible for the IRS Fresh Start Program?
If you are an individual taxpayer and you are happy to repay the debts you owe in a series of installments with a direct payment structure, you could benefit from the IRS Fresh Start Program. You just have to meet the requirements listed below:
- You owe less than $50,000 or you owe more than $50,000 but can reduce your debts to this amount before starting the program
- You can pay off your outstanding debt in less than 60 months
- Your tax files are up to date
- This is the first time you’ve fallen behind on payments to the IRS
- You will agree to a direct payment installment agreement
- You will maintain the installment agreement, keep up to date with tax filings and will not incur further tax debt while you are paying your installments
- You will file for OIC and are able to pay off the agreed settlement amount within 12 months.
As a first-time debtor, you may also be eligible for abatement of specific penalties. For example, if you owe less than $25,000 or you are able to reduce your debts to this amount before starting the program, you may also qualify to have a federal tax lien removed.
If you are a business owner and your business owes taxes, you could also be eligible for the Fresh Start Program. In this scenario, you will need to meet the following requirements:
- Your business owes less than $25,000
- You will be able to repay the full amount within 34 months
- Your business is up to date with current federal tax filings and payments
- It’s the first time your business has fallen behind on payments to the IRS
Of course, we’ve only touched on the basics to help you get to grips with the program. If you have any further questions, would like a firm answer in regards to whether you’re eligible for the program or not, or want to apply for the initiative, don’t hesitate to get in touch with us! Whatever your personal situation may be, our qualified, experienced and friendly tax professionals will be able to guide you in the right direction.
Request a free case review today to learn more about the IRS Fresh Start Program