The IRS Fresh Start Program was initiated in 2011, at the tail-end of the Great Recession fuelled by the subprime mortgage crisis, the collapse of the United States housing bubble, and the resulting global financial crisis. It was an important compromise and overhaul by the IRS designed to help taxpayers resolve their tax issues more easily, and it remains in place in 2023.
The IRS Fresh Start Program greatly simplifies the process of resolving your tax debt, by expanding eligibility for the Offer in Compromise option, expanding the number of taxpayers who are eligible for a streamlined installment payment plan, and reducing the number of taxpayer accounts that qualify for a tax lien.
What does the IRS Fresh Start Program Entail?
At its core, the IRS’ Fresh Start Program is an initiative designed to assist taxpayers who are struggling to meet their tax obligations.
The first and most important provision is for more streamlined installment agreements, where taxpayers can set up a payment plan to gradually pay off their debt without requiring a thorough review of a taxpayer’s finances.
The IRS Fresh Start Program also makes it easier for taxpayers to qualify for an Offer in Compromise, which reduces what a taxpayer owes if they can demonstrate that they lack the financial means to reasonably pay their tax debt in full before it expires.
Additionally, the Fresh Start Program offers relief in terms of the IRS’s lien and levy actions, making it easier for taxpayers to qualify for lien withdrawal or release, and avoid property seizures.
Taking Advantage of the Streamlined Installment Agreement
When a taxpayer owes money to the IRS, their options for repayment are split into three basic plans:
Pay everything all at once.
Pay everything over the course of 180 days, in multiple lump sums.
Pay consistently at a monthly pace, for anywhere between 180+ days and 6 years.
The latter of the three options is the installment agreement. There are many different installment agreements. The most important, however, are the streamlined installment agreements, and the non-streamlined installment agreements.
What sets them apart, aside from the fact that only streamlined agreements can be arranged online, is that non-streamlined agreements must be filed in paper form alongside a Collection Information Statement, or a Form 433-F. Collection Information Statements provide the IRS with a full and accurate rundown of a taxpayer’s finances, from their current and past income to any and all assets under their name.
Streamlined installment agreements do not require a taxpayer to fill out a Collection Information Statement. Instead, any qualifying taxpayer can setup their payment plan online, and get started paying off their tax debt immediately.
Before the IRS Fresh Start Program, streamlined installment agreements were limited to taxpayers with a total tax debt of $25,000 or less (including interest and penalties). Furthermore, streamlined installment agreements had a maximum length of 60 months, meaning a qualifying taxpayer must pay at least a 60th of their debt each month, without factoring in the accrued interest that gathers over that period.
After the IRS Fresh Start Program, streamlined installment agreements were expanded to all taxpayers with $50,000 or less in total tax debt, with a maximum length of 72 months. The only caveat is that taxpayers with a tax debt of more than $25,001, but less than $50,001 also need to agree to automatic payments (IRS Direct Debit), meaning the money is scheduled to be withdrawn from a designated account each month, rather than making voluntary payments.
Tax Liens Are Delayed, and That’s Good News
A federal tax lien is a legal claim by the government on the assets of a taxpayer with significant tax debt. It is a matter of public record, notifying current and would-be creditors that a certain taxpayer has obligations to the US government, and that any significant movement on their accounts would require the government’s debt to the satisfied, first.
Before the IRS Fresh Start Program, the IRS would begin issuing federal tax liens for a debt of $5,000 or more. At the time, a tax lien was akin to credit suicide, massively impacting your credit score for years to come. Since then, credit reporting agencies have stopped accounting for tax liens on customer credit scores – and the IRS has doubled the minimum threshold for a tax lien, to debts of at least $10,000 or more.
Settling Tax Debt with Offer in Compromise
The majority of tax debt cases involve smaller sums. But sometimes, serious financial setbacks or personal tragedies can leave taxpayers near indigency. For these taxpayers, paying a tax debt can be difficult – especially if it was accrued at a more financially stable or successful time. If your income is only a fraction of what you need to pay each month to finally get out from under your tax debt, what is the point of paying at all?
Recognizing this, the IRS allowed certain qualifying low-income taxpayers to become eligible for a special installment agreement, which greatly reduces the principal debt to whatever the taxpayer can pay. This is called the offer in compromise. Offers in compromise were notoriously difficult to qualify for, however, and taxpayers rarely stood a chance of eliminating their debt.
While eligibility for an offer in compromise is still strict after the IRS Fresh Start Program, it has become much more realistic with taxpayers in dire straits to reduce their debt this way.
Do You Qualify for the IRS Fresh Start Program?
The IRS Fresh Start Program applies to all first-time tax offenders. It represents additional leniency afforded by the IRS to taxpayers who might not know about the ramifications of falling behind on filing tax returns or paying their taxes. Certain elements of the Fresh Start Program specifically cater towards lower-income taxpayers, however, such as the expanded coverage for an offer in compromise.
Nevertheless, it pays to know how recent IRS changes have made tax debt resolution much simpler, and much more realistic, even for less fortunate taxpayers. If you’re still confused about your options for tax debt resolution, or want an in-depth review of how you might be able to best resolve your tax debt, get in touch with us at Rush Tax Resolution today.