IRS Fresh Start Program: Myth vs. Fact

If you’ve been dealing with overwhelming tax debt, you’ve probably seen or heard ads for the IRS Fresh Start program. The ads likely promise that the program will provide options to pay down or settle the tax debt. But what’s the truth about the IRS Fresh Start process? Keep reading to find out.

Understanding the IRS Fresh Start Program

Let’s go back to 2011. In February of that year, the IRS decides to help struggling taxpayers by announcing a series of initiatives “to help people get a fresh start with their tax liabilities.” And voila, the IRS Fresh Start Program was born.

The IRS Fresh Start Program was nothing more than a series of procedural changes to make eligible taxpayers better cope with tax debt. Those changes included:

1. tax lien thresholds
2. tax lien withdrawal process
3. direct debit installment agreement
4. offers in compromiseLet’s dive into each change to understand exactly what the changes were:

Offer in Compromise

An Offer in Compromise (OIC) can settle your tax liability for less than the full taxes owed. Before 2011, there were strict rules for an OIC. The IRS Fresh Start Program relaxed those rules. Specifically, the IRS made changes to allow taxpayers with incomes up to $100,000 to participate. It also changed the rules so taxpayers with up to $50,000 in tax debt could apply.

But guess what? None of those rules apply anymore!

Since the program’s release, the IRS has made further updates to the OIC process. As a rule, there is no maximum income threshold, although there are practical implications to making too much money. Most OICs are determined based on your financial situation. To qualify, you’d need to demonstrate you are encountering financial problems and cannot repay the debt within the statute of limitations. While an OIC is a great way to handle back taxes, not everyone will qualify.

Installment Agreements

Installment Agreements under the IRS Fresh Start program were also revised. These allow you to make payments over time rather than paying all at once. For small businesses, the changes meant that companies with $25,000 or less in tax debt could qualify for a streamlined payment plan, whereas before the revision, the threshold was $10,000 to qualify.

Fast forward to today; multiple options are available to pay your taxes over time. There are streamlined installment agreements, guaranteed installment agreements, in-business installment agreements, and negotiated installment agreements. All of these installment plans have different eligibility criteria, and all help you resolve your tax debts by allowing you to pay over time.

Lien Withdrawal and Subordination

The IRS Fresh Start Program also changed how the IRS deals with tax liens. A tax lien is a security interest in the property you own or may acquire. Tax liens differ from tax levies, where the IRS takes money from your bank account.

The program changed when a federal tax lien could be withdrawn. Suppose you owe the IRS $25,000 or less and agree to enter into a direct debit installment agreement. The monthly payment will pay the entire tax liability in 6 years. In that case, the Internal Revenue Service will withdraw the federal tax lien after three consecutive monthly payments.

The program also made getting a tax lien withdrawn easier once the tax is paid either with a lump sum or through an installment plan.

Eligibility Criteria for the Fresh Start Program

Who is eligible for the Fresh Start Program? Many taxpayers—all taxpayers! That’s right. Despite what you might have seen or heard in advertisements, there are no specific eligibility criteria. In reality, there is no Fresh Start Program per se. Rather, the “program” was a series of rule changes to try to give relief to more taxpayers. In the 13 years since those changes were made, even more changes have been made to allow flexible options for dealing with back taxes. These options allow payments over time or a reduction in the debt.

Depending on the relief you seek, there are practical restrictions on qualifying. For instance, anyone can file an offer in compromise. However, not every taxpayer who files it will get it accepted. If you have unfiled tax returns and file an OIC, the IRS will return the offer, and you can only resubmit when those missing tax returns are filed. Most criteria revolve around a taxpayer’s “ability to pay.” For things like penalty relief, anyone can request the penalties be removed. However, the IRS will only remove those penalties if you demonstrate you meet the criteria for relief.

Applying for the IRS Fresh Start Program

There is no magical application process for the Fresh Start program. If a taxpayer owes back taxes, various options are available. Your specific circumstances will determine which option is best. Some factors will be your income, the total debt, assets, expenses, the amount of penalties that have accrued, and the collection expiration date. Based on these, a tax professional would advise on the best option based on your financial situation.

Working with Tax Professionals

Dealing with the complexities of tax law often requires the expertise of tax professionals. Not all tax professionals are created equally. Tax attorneys usually have specialized education in tax law and more stringent ethical obligations to their clients. Be wary of “tax experts” who try to sell you on a fresh start program that doesn’t exist. This is simply a marketing ploy to get you to retain their services. A true tax professional will examine your options and decide what options you qualify for and the best strategy to deal with the IRS.

Real-life Success Stories

As they say, the proof is in the pudding, and real-life success stories abound. If you are interested in getting your IRS penalties waived, setting up an installment agreement, or finding another way to pay or settle your tax debt, we can help.

Staying Compliant After the Fresh Start Program

Whether you end up with a penalty abatement, a payment plan, or an OIC to deal with your tax balance, you must stay compliant. The IRS is more than willing to work with people to deal with their tax problems, but they don’t like to see the balance increase. The IRS wants to see that proverbial line in the sand, where you pay past-due taxes and are granted some relief but do not encounter the same issues in the future.

Summary

The IRS Fresh Start Program isn’t a program per se but rather a series of administrative changes the IRS made to give taxpayers more flexible options. Anything else you see or read about the program is marketing hyperbole.

Frequently Asked Questions