How Does the IRS Fresh Start Program Work?

February 1, 2021

No one likes owing the Internal Revenue Service (IRS) money, but if you’re in a situation where you owe back taxes, it may be downright scary. Fortunately, the IRS Fresh Start program may be your ticket to tax debt relief and regaining control of your finances.

How Does the IRS Fresh Start Program Work?

Overview of the Program

The Fresh Start program is actually not a new program, but it has gained more notice lately as more Americans find themselves struggling with tax debt. It was initiated in 2011 and was designed to help taxpayers who owe back taxes but don’t have a federal tax lien against them find solutions to clearing their debt and earning a “fresh start.” The basic components of the program in 2011 included:

  • Increased the amount to trigger a tax lien from $5,000 to $25,000
  • Simplified the tax lien release process when a tax debt was paid off
  • Allowed the IRS to withdraw tax liens more often when a taxpayer agreed to an installment plan
  • Relaxed the requirements for small businesses to get an installment agreement
  • Streamlined and expanded qualifications for an offer-in-compromise (OIC)

A year later, the IRS added additional provisions of the program to relax how the agency calculated a taxpayer’s income when determining if they qualify for an OIC and expand the types and amounts of expenses that are considered reasonable when the IRS determines how much a taxpayer can afford to pay every month. The Fresh Start program was an acknowledgment of how difficult it is to pay taxes when you’re struggling to pay your other bills.

Qualifying for the Program

As with most IRS programs, there are certain criteria that determine who is eligible for the Fresh Start program. For the most part, if this is your first time owing back taxes as an individual, you probably qualify for an installment agreement where you can pay your delinquent taxes back to the IRS over time.

However, you do have to meet the following criteria as well:

  • You owe less than $50,000 or are able to pay a larger debt down to $50,000.
  • You are able to pay off the debt in 72 months (six years) or less
  • This is your first time owing back taxes to the IRS
  • You agree to the IRS’ direct payment installment agreement
  • Your tax returns are current through the most recent tax year
  • You continue to abide by the installment agreement
  • You stay current on tax filings
  • You don’t incur new debt during the installment agreement period
  • You apply for an OIC and are able to pay the settled amount off in 12 months or less

The Fresh Start initiative is also available to businesses that meet the following requirements.

  • Owe less than $25,000 and are able to pay it off within 34 months (less than three years)
  • Are current with all tax filings and payments (including 941s)
  • This is the first time the company has owed back taxes to the IRS

Repayment Options

The Fresh Start program offers three repayment options to taxpayers who qualify for the initiative. No matter which option you choose, once you’ve met your obligation, your tax debt will be considered legally satisfied.

Within six years, you’ll be able to free yourself from your IRS debt and begin rebuilding your financial life. You may also be able to avoid the harshest penalties of owing taxes, such as wage garnishments, seizures, and liens.

Installment Agreements

This is the tax debt solution that is most commonly accessed under the Fresh Start program because it’s the easiest one to qualify for. You’re able to pay off your existing tax debt by paying monthly installments and not incurring additional penalties and interest.

Additionally, when you apply for this option, it will stop IRS collection activities such as wage garnishment, seizure of assets, and federal tax liens. These actions can cause immense stress, so their absence is usually welcome.

Your payment under an installment agreement will be based on your current income and the value of your assets you have available to you. The IRS makes every effort to make these payments affordable so that taxpayers can meet their obligation every month and still be able to pay their regular bills. The goal is for the IRS to eventually get every penny it’s owed, but over time instead of all at once and without unduly penalizing the taxpayer.

Offer-In-Compromise (OIC)

An OIC is likely what you have heard advertised on the television and radio that says you may be able to settle your tax debt for less than you owe. While those ads are true, OICs are actually fairly rare because the IRS would rather get all the money it’s owed than only a portion. If the IRS determines you have the income or assets to pay your debt off over time, your OIC application will be denied.

If you apply for an OIC, you’ll want to make a reasonable settlement offer that reflects your current financial circumstances. You will be required to declare your assets, all sources of income, and file all necessary forms and documents. If you choose to go this route, you may want to hire a tax professional to help you apply, as fewer applications are denied when tax professionals are involved than when taxpayers try to apply alone without help.

Tax Lien Withdrawal

This is a form of relief for taxpayers who’ve had a federal tax lien filed against them for owing back taxes and have agreed to pay their delinquent taxes entirely through direct deposit.

After they apply for the direct deposit repayment option and are set up in the system, they can write to the IRS and request the federal tax lien be removed from their account. This can prevent the lien from being reported to various credit reporting agencies.

How to Apply

As long as you have met the requirements for one of the three repayment options under the Fresh Start program, you can begin the application process. Applying for an installment agreement is fairly straightforward, as you’ll use the Online Payment Agreement tool on the IRS website.

However, you can also apply by phone, in person, or by mail. You may not feel comfortable dealing with the IRS on your own, though, which is when a tax professional can help. If you’re going to apply for an OIC or a tax lien withdrawal, you’re encouraged to seek the help of a tax professional, as the process can be complicated with the various forms you have to complete and the assets and income you must declare.

Get the Help You Need

A tax professional will make sure you don’t make any mistakes when you file, which can have severe penalties, including being charged with perjury for not being truthful when providing your income and assets.

A tax professional can also ensure you don’t disclose more than you have to, which is also important when dealing with the IRS, especially if you ever become the subject of an audit or criminal investigation. The job of a tax professional is to protect your rights while still abiding by the IRS requirements.

Owing back taxes to the IRS is stressful, but there are ways out from under the burden. Contact Geaux Tax Resolution to speak to us about the Fresh Start program and how you can take advantage of it.