Every so often, the IRS will come up with a new plan to help taxpayers get back on track with their debts or balances owed to the government. Currently, that plan is called the Fresh Start Initiative, and it can help taxpayers settle their debts quickly and more easily.
What is the Fresh Start Initiative?
Once known as the Fresh Start Program, the Fresh Start Initiative is not a program in itself, but rather a series of changes to current IRS Collection procedures and policies. It’s designed to help both individual taxpayer and small businesses attempting to settle an overdue tax liability.
In theory, the Fresh Start Initiative has features that make it easier for taxpayers to pay back their outstanding balances and avoid tax liens, or have existing liens withdrawn.
How Long Has This Initiative Been in Place?
The original IRS Fresh Start Program was put into place in 2008 to help citizens resolve their tax problems and aid those in dire straits, and it underwent some growth back in 2012. When they re-tooled the system, the IRS made things easier for those struggling with unemployment or hard financial times. For example, the penalties for failure to pay taxes on time may be waived for those that have been unemployed for a period greater than 30 days under the guidelines of the IRS Fresh Start Program. Qualified individuals who apply can seek a six month extension to pay, with no fear of penalties.
The two major tax debt payment plans that were simplified under the Fresh Start Initiative include the Installment Agreement and the Offer in Compromise program.
What is an Installment Agreement?
If you cannot pay your tax debt in full, you can apply for a payment plan with the IRS, known as an installment agreement. An Installment Agreement is granted to taxpayers who would like to pay off their debt in smaller monthly increments. This tactic can help reduce penalties like tax levies from unpaid taxes, and the amount paid may be the full debt amount or a lessened value.
These agreements can be negotiated, but ultimately the amount owed each month is up to the discretion of the Internal Revenue Service. There are a variety of different installment agreements: a streamlined installment agreement, partial-pay installment agreements, and stair-step installment agreements. Regardless of installment agreement, taxpayers approved for this type of payment plan must be sure to never default or miss a payment.
If you owe more than $50,000 and you can’t reasonably pay your tax debt off within six years, you’ll need to work with a tax professional to devise an installment agreement the IRS will approve. You’ll propose a payment plan that offers the IRS the amount of your monthly income minus your essential living expenses. It’s important to begin sending in monthly payments after presenting your offer; the IRS is more likely to approve an installment agreement if you’re making viable steps towards settling your tax debt. There are numerous ways to pay, but installment agreements do come with fees.
You can make on-line payment, send in a money order or check, pay by credit card, and over the phone, but some of these options are better than others in terms of fees. Currently the fee for an installment agreement can range up to $120, but choosing on-line payment can decrease this fee amount. Direct Debit payments pull money directly from your checking account each month, and this can be a wise route for taxpayers who want to avoid missing a payment unintentionally. So long as the account is open and filled with sufficient funds, you won’t need to worry about making a payment on time.
If you owe more than $50,000, you’ll have to submit both Form 433-F and Form 9465. Keep in mind that a tax debt with an outstanding balance of over $50,000 cannot be completed online; it must be done through mail or in-person.
There is also a small business installment payment agreement for companies that owe less than $25,000 in back taxes. This is known as an In-Business Trust Fund Express installment agreement. You must currently have employees to qualify; if approved, you’ll have 34 months to fully pay off your tax debt. If your debt is under this threshold but over $10,000, you must pay through a Direct Debit installment agreement. This can be a great option for a start-up business that has found itself in trouble during its first few years of operation.
Keep in mind that you cannot default on your payment agreement; should you miss a payment, you may face a failure-to-pay penalty and the Internal Revenue Service could revoke your installment agreement.
What is an Offer in Compromise?
An Offer in Compromise (OIC) is an IRS tax settlement option given to taxpayers who are unable to pay the full amount of taxes they owe. The OIC program can be a useful tool for taxpayers that have found their tax debt to be insurmountable. If a financially distressed taxpayer can prove that paying off the entirety of their debt would cause undue financial hardship, the IRS may consider reassessing the amount of debt owed.
How do I qualify for an offer in compromise?
This compromise is only offered if the IRS determines the full debt to be unpayable. This offer will only be accepted if the IRS believes the money gained from it will be greater than or equal to the amount they could realistically expect to receive from a taxpayer. There are various stipulations that come along with this rare offer, but Community Tax has helped many taxpayers decrease the amount of money owed through this IRS system.
If you choose to file an offer in compromise through the OIC program, the government will assess your unpaid tax and analyze whether or not you’ll be able to pay back your full debt. If they deem your current and future income insufficient to feasibly handle your outstanding balance, they may agree to settlement that’s lower than your original overall tax debt. The IR will assess your eligibility based on the following three qualifications:
- Doubt as to Credibility
If the IRS assumes they will be unable to collect the amount owed in the foreseeable future, this may improve your chances of eligibility. They will consider whether they would be able to collect more money through forced collections than they would through the offer in compromise; if the former option will collect them more, the offer in compromise is not likely to be accepted.
In order to prove you do not have the ability to pay your full outstanding balance, the IRS will combine your net equity in assets with your projected monthly disposable income—the value is what is known as reasonable collection potential or RCP. If even projected future income will fall short of what you need in order to pay your debt in full before the collection statute of limitations expires, they are likely to deny your offer.
- Doubt as to Liability
If there is doubt that the assessed liability is correct, whether due to examiner error, omission of evidence, or new evidence to prove the assessed tax debt was incorrect, the Internal Revenue Service may be willing to accept an offer in compromise or reexamine the total liability of an unpaid tax.
- Effective Tax Administration
If your individual circumstances mean that forced collection may cause financial hardship, the Internal Revenue Service may be more willing to consider an offer in compromise.
Beyond these three main facets, you must be up to date on your tax filing. Regardless of whether or not you can pay your tax debt, it’s important to always file. This will help you avoid a failure-to-file penalty, and make it more likely that the Internal Revenue Service will accept any offer made. You also must not be involved in any open bankruptcy proceedings, and will be expected to describe your financial situation in great detail.
Receiving approval for an offer in compromise can be difficult; they’re rare and can take months to approve. It’s important to consider hiring a tax preparer or other tax professional to help arrange the details of such an offer to ensure a better chance of approval.
Another feature that has been transformed through the Fresh Start Initiative program is the process of a federal tax lien. Under these new terms, you have the right to file for a withdrawal if you’ve paid off your tax debt and fulfilled other certain requirements. The IRS also increased the amount you owe in order to get served with a tax lien. Currently, this amount is $10,000, but there are cases in which a taxpayer may be served a tax lien even if their outstanding balance is less than $10,000.
Are There Limitations on Who Can Use the Fresh Start Initiative?
There are varied limitations on who can receive this tax penalty reprieve, and some of the most common include:
- Those who are self-employed must provide proof of a 25 percent drop in their net income.
- Taxpayers can’t earn more than $200,000 per year for married couples filing jointly or $100,000 for single filers.
- Your tax balance must be below $50,000 at the end of the year to qualify.
There are various other limitations, but a tax professional from Community Tax can guide you through the ins and outs of the process and help you determine which course of action is right for your financial situation.
How Long Will Processing Take?
Every case is unique, but as a general rule it’s not uncommon for the Fresh Start Initiative process to take several months. There have been cases that can require a year for completion.
Can the IRS Reopen My Debt After a Fresh Start Initiative Settlement?
Yes, a Fresh Start Initiative settlement can be reassessed even after it has been paid. The IRS requires that you finish your payments for the settlement and continue to file and pay all taxes for five years after completing the terms of your settlement package. If you fail to do so, the IRS will likely pursue the full amount of taxes originally owed.
How Do I Know if I’m Eligible?
There are numerous considerations that go into determining Fresh Start Initiative eligibility. Whether it be future income concerns or bankruptcies under your name, a current tax lien or defaulted installment agreement, there are many aspects that go into the IRS’ deliberations.
One problem many taxpayers in debt to the IRS face is keeping up with the changes in programs like the IRS Fresh Start Program. There are many details in the Installment Agreements, Offers in Compromise and other resolution options that can be tough to remember. Some of the changes enacted by the IRS may not impact all individuals in debt and it’s difficult to know whether you fall in that group or not. The new updates to the Fresh Start Initiative are yet another set of rules to keep straight when trying to resolve tax problems.
Thankfully, taxpayers can keep the whole process relatively simple by hiring a company whose entire job it is to keep these facts straight and report them accurately to clients. Community Tax focuses on staying up to date on the various changes the IRS makes to programs like the Fresh Start Initiative so that their customer base is never left in the dark and receive all the guidance they need to settle their back taxes. This kind of service can help taxpayers to save money, extend deadlines, or find their way into the best tax debt resolution plan to meet their needs. Anyone with questions on the Fresh Start Initiative or other IRS programs would do well to contact Community Tax and get quality help to ease their financial troubles. Call now for more information and a free consultation! Call 1-888-676-4128.