5 Things to Know About the IRS Fresh Start Program (BEFORE You Start the Process)

December 23, 2019

Tax season is stressful, especially if you owe a debt to the IRS for past years. Waiting to resolve your debt won’t get any easier as the years go on, and if you want to get debt-free with as little pain as possible, the time to act is now. The IRS Fresh Start Program is a way to pay off your debt without the expensive penalties and interest of an installment plan.

5 Things to Know About the IRS Fresh Start Program

1. What Is the Fresh Start Program?

Contrary to what the media often shows, the IRS isn’t interested in criminally prosecuting people for failing to pay their taxes. They want to get their money as quickly as possible, and they’ve set up the IRS Fresh Start Program to make it possible for delinquent taxpayers to pay off their debt in installments over six years. The monthly payments based on the current income and liquid asset value of the taxpayers, with a long-term plan of total repayment in six years or less.

This eliminates common challenges that come with tax debts, including interest, penalties, tax liens and seizures of property, and wage garnishments. The program is open to anyone who owes a tax debt of less than $50,000 to the IRS. The program comes with three repayment options and has been in effect since 2008, with waivers included for taxpayers struggling with unemployment.

2. What Are the Repayment Options?

The IRS Fresh Start Program offers a trio of repayment options for taxpayers to pay off their tax debts legally in installment plans while avoiding penalties and asset forfeiture.

The first choice is an extended installment agreement designed for anyone who owes less than $50,000 to the IRS. It works on a six-year schedule of installment payments that freezes penalties and interest where they stand as long as installments are paid on schedule. The IRS will not engage in active collection efforts like wage garnishments during the installment plan, and installments are determined by the taxpayer’s assets and income.

The second option is an Offer in Compromise, a rare option for taxpayers to settle their debt immediately through a compromise offer for a significant portion of the debt. The percentage will vary based on assets and taxpayer conduct, but this is ideal for taxpayers who have standing assets but want to be debt-free for an upcoming investment or loan application. This tax relief option is done through an application with the IRS, where you can make an initial offer.

The final option is a tax lien withdrawal, where the taxpayers offer to pay off their entire tax debt through a direct deposit repayment. The taxpayers then formally request to have the tax lien eliminated in lieu of the alternative payment. The benefit of this plan is that the direct deposit repayment doesn’t show up on your credit reports and makes it easier to get loans.

3. Applying to the IRS Fresh Start Program

The first step is to make sure all your back and current tax returns are filed with the IRS, and they have your financial information. Any outstanding tax returns will disqualify you from the program. The next step is to apply on IRS.gov for the program using the Online Payment Agreement tool and select your repayment option.

You can also apply by mail using IRS Form 9465, which can be found online or at the offices of a tax professional like the ones at Geaux Tax Resolution. The advantage of hiring a tax professional is that they will go over your tax history and any outstanding returns before you apply. You want to present your best face to the agency when applying, so a tax professional can vet your numbers before it hits the desk of an IRS agent.

4. How Does the IRS Decide Who to Accept?

Every case that hits the IRS’s desk will be determined on an individual based on multiple factors, including the taxpayer’s present and future income, expenses, and whether the compromise is likely to leave the IRS with more money than the alternative. They will also take several intangibles into consideration.

The first element they will consider is credibility, or whether it’s likely that the taxpayer will stick to the repayment plan. The Fresh Start Program gives the IRS less money than the full debt but in exchange for a guarantee. If the IRS sees that the taxpayer has a history of defaulting on loans or multiple accounts in collections, they’re likely to opt for forced collections instead.

Another factor the IRS will look at is accuracy and liability, and many taxpayers are able to get their debt reduced by arguing a tax preparation error. If you believe your debt is higher than it should be, seek the help of a tax preparation professional. If you or another professional filed your return, a fresh set of eyes might reduce your debt.

The third factor the IRS will consider is compassion and the likely payment plan. If paying the full debt immediately or having your wages or assets garnished would cause hardship, the IRS will give your case preference. Taxpayers who are pressed beyond their financial means for immediate payments are less likely to have the assets to pay, making it to the IRS’ benefit to take a compromise or installment plan.

5. How Is the Program Supervised and Enforced?

The IRS trusts taxpayers on an extended settlement plan to pay their tax debt promptly and regularly, and they will monitor each month’s payments. If a taxpayer fails to keep up on payments, the IRS reserves the right to nullify the terms of the agreement and reinstate the full value of the debt. The deal is likely to have additional terms for future enforcement, like requiring that the taxpayer file their taxes and pay them in full for the duration of the agreement.

The IRS updates the tax code yearly, and the Fresh Start Initiative is subject to changes with the terms. This is why we recommend working with the tax professionals at Geaux Tax Resolution, as our tax experts keep up on the changes and can ensure you’re fully compliant with the current regulations. If the changes to the tax code affect your agreement and make it more difficult to pay, your tax professional can take proactive steps to ensure you stay in good standing with the IRS Fresh Start Program.

Get Rid of Your Tax Debt Now

If you’ve been delaying paying off your outstanding tax debt, the IRS isn’t going to forget, so it’s time to take charge of the situation. The IRS Fresh Start Program is an installment-based repayment plan that offers multiple options for taxpayers looking to resolve debts of under $50,000. A professional tax preparer can make it easier to get into the program and stay current on payments and regulations.

Contact Geaux Tax Resolution for more information on our services and start your journey to tax debt freedom today.