Last Updated October 23, 2022
If you owe a large chunk of money to the Internal Revenue Service (IRS), you may qualify for the IRS Fresh Start Program! Also known as the IRS Fresh Start Initiative, this program can be an excellent way for taxpayers to significantly reduce their tax debt. Keep reading for more information on the IRS Fresh Start Program.
What is the IRS Fresh Start Program?
Established in 2011 by the U.S. government, the IRS Fresh Start Program provides tax debt relief to select taxpayers who are indebted to the IRS. Those who are eligible for this program can reduce their federal tax debt. In fact, some taxpayers have been able to reduce over 90% of their outstanding debt!
The United States government created this program as a response to predatory practices by the IRS and designed it to assist taxpayers who are drowning in debt, helping them reduce the amount they owe. This program can get Americans back on track and allow them to plan and prepare for their financial future. The IRS is obligated to offer this program to eligible U.S. taxpayers with current tax debt.
In 2012, this program was revised to make it more accessible to American taxpayers. The revisions included:
- Simplifying the IRS’s method of determining a person’s future income while considering offers in compromise.
- Increasing the different types of expenses and their amounts (this includes student loans, living expenses, tax debts, and more) that the IRS considered reasonable while also determining the amount taxpayers could pay each month.
The new rules for the program made it easier for taxpayers to become eligible for debt relief.
How Does The Fresh Start Program Work?
Let’s say that a taxpayer owes $30,000 because of several years of back taxes, in addition to penalties and compound interest. This person may also be unemployed and barely making ends meet. They currently cannot pay back this $30,000 tax liability, and may never be able to do so.
The IRS Fresh Start Initiative mandates that the IRS cannot demand more than a taxpayer can pay. Because of this, the IRS and the taxpayer can reach an agreement allowing the taxpayer to pay back an amount they can reasonably afford. The primary criterion that evaluates whether or not a person is eligible is their financial situation.
To initiate this process, the taxpayer must fill out a form on the IRS website, contact an IRS representative, or make an appointment at an IRS office to determine their eligibility before being approved. Once the application has been submitted, the IRS will process the request and contact the taxpayer to inform them if they have been approved. Then, the taxpayer will find out the new payment amount.
What Are The Eligibility Requirements For The Program?
Those eligible for the Fresh Start Program should be ready and able to repay their debt through several installments over a specific period. Other qualifications include the following:
- Having less than $50,000 in IRS debt, and the ability to repay most of it.
- The ability to repay the debt over the span of five years or less.
- No previous history of falling behind on IRS payments.
- Being ready to pay via direct deposit installment payments.
- Being current with their tax filings for the current tax year.
- Agreeing to the installment agreement, staying up-to-date on filing taxes, and not incurring additional debt through the installment agreements period.
- Filing for and paying the amount for an OIC program within a year.
There are also a few bonus items for eligible taxpayers:
- If your debt is less than $25,000, or if you can pay a lower initial liability, you can withdraw any federal tax liens.
- First-time taxpayers could have some of their penalties reduced.
Those who have been unemployed for over a month could have a chance of their IRS tax penalties being reduced, and can also ask for a six-month grace period to file and repay taxes without incurring IRS penalties.
Small businesses or small business owners are also eligible to file for the Fresh Start Initiative, but only if:
- The debt is less than $25,000
- They are up-to-date with federal employment tax filing payments
- They have never previously fallen behind with IRS payments
- Specific penalties may be reduced as part of their qualifying bonus
What Happens If I Can’t Pay My Taxes In Full?
If you can’t pay your taxes in full, don’t worry! Other than applying for the Fresh Start Program, there are some other alternatives, including:
- A payment extension: You can ask the IRS for up to 120 days to pay your taxes.
- A payment plan: Believe it or not, you don’t necessarily have to pay your taxes in a lump sum or all at once. It is possible to spread out your IRS payments through a payment plan where you submit monthly payments.
- Currently not collectible status: If you can prove financial hardship, the IRS won’t require you to pay until your situation has improved.
- Offer in compromise (OIC): Individual taxpayers typically use an OIC when they have little assets and have trouble meeting their daily living expenses. More on this later!
What Are Some Other Payment Options?
Short-Term Payment Plan
A short-term payment plan is spread out over 180 days or less, and doesn’t have any initial fees other than interest accrued over time. Penalties for non-payment include up to 25% of the unpaid tax bill.
Long-Term Payment Plan
Similar to an installment loan, a long-term payment plan is when you pay a set monthly payment in automatic withdrawals. You’ll pay a $31 set-up fee, interest until the balance is paid in full, and penalties up to 25% for non-payment.
Use a 0% APR Credit Card
The IRS has fees for those that need a payment plan, but a 0% APR credit card can allow you to pay over time without accruing fees. If you have a decent credit score, this is worth considering!
What Is An Offer In Compromise?
While this is a rare option, it allows some taxpayers to settle their IRS tax debt through the Fresh Start Program. During an Offer in Compromise (also known as OIC), the taxpayer will offer to pay less than they owe – this is sometimes significantly lower than the original amount.
If you plan to use OIC to settle your debt, making a reasonable offer that reflects your present financial situation is important. With the compromise program, the IRS will also scrutinize your offer to make sure it’s fair and you have no other options. If everything looks good, the IRS may accept your OIC and release you from any obligation to pay the rest of your tax debt.
You can apply for an OIC here or learn more about the application process here.
Other Fresh Start Repayment Options
Other than an offer in compromise, there are three other ways to repay your debt through the Fresh Start Initiative. These tax relief programs are:
Extended Installment Agreement
This is the first option for taxpayers eligible for the Fresh Start Program. Taxpayers will be given up to six years to repay their debt without facing penalties or interest. They also won’t have to worry about additional IRS fees like wage garnishments, tax liens, or getting their assets seized. For this option, the IRS will calculate reasonable payments based on your financial situation, ensuring that you will be able to make regular tax payments.
Tax Lien Withdrawal
This is an excellent option for taxpayers who are ready and able to repay the entire debt amount through a direct debit repayment. The taxpayer will give the IRS written instructions so they can withdraw the amount directly from their bank account. The withdrawal will happen automatically until the debt is repaid in full. The benefit of this method is that it releases the tax lien from the taxpayer’s credit report, which can improve their credit score.
In other words, Penalty Abatement means that your debt will either be wiped out or significantly reduced. However, the IRS will only allow this option for a reasonable cause, so it may be challenging to get. You should also be aware that your local IRS office can only grant Penalty Abatement up to $100.
What Happens If I Don’t Pay My Taxes?
If you don’t pay your taxes by the deadline, you’ll start to rack up interest and penalties on the outstanding amount. When you don’t pay your taxes, the IRS will take enforcement action against you. This means that the IRS could seize your assets, put a lien on your property, wage garnishment, or even refer your case to the Department of Justice for criminal prosecution. Of course, it’s always best to avoid getting to this point by paying your taxes on time or making arrangements with the IRS if you can’t pay in full.
How Do I Apply For The IRS Fresh Start Program?
If you’re applying for the IRS Fresh Start Program, you’ll need to follow the established guidelines for past and existing tax returns. For example, you can’t request a repayment option if you have never filed a tax return. It’s also important to be on time when filing your future tax returns.
After you file your tax returns, go to IRS.gov and enroll using the Online Payment Agreement tool. From there, you can choose your preferred method of repayment. If you don’t want to do this online, you can fill out and submit IRS Form 9465, available on the IRS website.
Keep in mind that the IRS Fresh Start Program is only available to qualified taxpayers—meaning those who provide sufficient proof that they are in financial need. You may need to submit medical statements, insurance claims, fire department reports, student loan statements, the death certificates of certain family members, or other financial statements that pertain to your financial situation. It’s also a good idea to submit a letter with Form 9465 explaining your financial situation and why you cannot pay your tax debt.
Although it may sound straightforward, applying for the Fresh Start Program can be somewhat complicated and confusing. To prevent frustration, it’s always a good idea to hire a tax professional or tax attorney during this process. They can help you decide on the best options for your tax repayment program, help you fill out any necessary paperwork, and answer your questions along the way. The good news is some tax attorneys offer a free consultation and you can get quality legal advice before paying any legal fees.
The IRS Fresh Start Program is a program that was designed to help taxpayers who are struggling to pay their tax debt. There are several repayment options available, and the program is open to qualified taxpayers. If you’re considering applying for the Fresh Start Program, it’s important to understand the guidelines and what documents you will need. You may also want to hire a tax professional or attorney during this process for assistance.