What is the IRS Fresh Start Program?
Updated: Apr 17
Many taxpayers have heard about the IRS Fresh Start Program, but do not understand what it offers for taxpayers with substantial tax debts. The IRS Fresh Start Program is a tax relief program that allows a taxpayer to pay off substantial IRS tax debts over a period of six years. The IRS Fresh Start Program affordably allows taxpayers to pay off IRS tax debts over this extended period of time to both resolve their IRS tax debt situation and not start a different financial problem like getting behind on mortgage or car payments.
The Fresh Start Program does not simply require a large monthly payment. Instead, the taxpayer’s current income and liquid assets are taken into account to calculate a monthly payment that the taxpayer can afford to pay. After the course of the six year repayment period, the tax debt is repaid in full.
It is normal for taxpayers to feel overwhelmed and scared when receiving an IRS notice of assessment or IRS demand for payment of tax debts, but the IRS Fresh Start Program can help. The IRS Fresh Start Program directly addresses common concerns and payment of substantial tax debts by stopping or reducing the IRS tactics of collection and enforcement of tax debts including:
Reducing interest assessed on tax debts
Reducing penalties assessed on tax debts
Impact of IRS tax liens on taxpayer property
Garnishment of wages or other sources of income to repay tax debts
Levy of bank accounts
Taxpayers who likely can repay their tax debts, including substantial tax debts, should consider the IRS Fresh Start Program to avoid the detrimental effects of IRS enforcement actions while taking control of their finances during the repayment period.
The IRS Fresh Start Program was initiated in 2008 and expanded in 2012. While not always referred to as the IRS Fresh Start Program, the important aspects of the program can be reviewed by tax relief type as discussed below.
Who Qualifies for the IRS Fresh Start Program?
The starting point for who qualifies is the amount of tax debt owed. For taxpayers who owe up to $50,000 to the IRS, they can apply for tax relief using the IRS Fresh Start Program at any time. For those above this amount, it may be possible to reduce a substantial tax debt to below this important threshold to qualify. Individuals and businesses can qualify. Business taxes could include income taxes and related payroll taxes.
Unemployed taxpayers are also eligible for certain types of relief. When the program was initiated in 2008, many taxpayers were experience economic hardship and delayed IRS tax payments to pay other debts. The IRS is aware that unemployment does not cover a full income level, so penalties and filing may be delayed in certain situations to allow time for a taxpayer to gain employment.
What are My Repayment Options under the IRS Fresh Start Program?
The IRS Fresh Start Program offers three repayment options to resolve IRS tax debts. These programs work separately from each other so taxpayers must determine whether they qualify for each. Taxpayers that complete one of the programs will fully repay any tax debts including tax penalties and interest. Any interest that has accrued will stop once repayment is complete. Any state income tax debt will not be included in the IRS program but the taxpayer may qualify for a state tax relief or tax resolution program as a result of qualifying for a tax relief option under the IRS Fresh Start Program.
IRS Offer in Compromise
The first option in the IRS Fresh Start Program is the Offer in Compromise, commonly referred to as the OIC program. Taxpayers are less likely to qualify for the OIC program because the IRS does not require full repayment of the tax debt if the taxpayer qualifies. The IRS understands that taxpayers may not be able to fully pay substantial tax debts and circumstances change, including job losses and other economic hardships.
If the IRS believes that a taxpayer cannot fully repay a tax debt, the IRS is authorized and will accept less than full repayment or settlement. In exchange, a taxpayer must remain in full tax compliance with filing returns and paying taxes. Taxpayers should propose a fair and reasonable settlement based on current financial circumstances. Preparing the OIC application may be complicated and given the IRS acceptance rate of OIC offers is low relative to other programs, and the benefits of acceptance are high, having a tax attorney prepare your OIC application and related tax returns is often a good idea and worth the cost.
Some tax resolution companies use the OIC program to dangle “pennies on the dollar” tax relief to get taxpayers to call. While in some cases taxpayers will qualify for this program, many do not qualify and by then the taxpayers have signed up for an expensive resolution company that cannot deliver the promised results. Steiger Tax Law guarantees its flat fee and will not overcharge taxpayers by thousands of dollars. While no tax resolution can guarantee a result, they can guarantee that the fee charged is fair and no “bait and switch” tactics are used.
Withdraw a Tax Lien by IRS Agreement
The second option available to taxpayers who are able to full pay their tax debt is a tax lien withdrawal agreement. When the IRS files a notice of federal tax lien (NFTL) against a taxpayer, banks will not lend the taxpayer money because the IRS has a super-priority lien. An NFTL may also make selling a home impossible. If a taxpayer is willing to enter into a direct debit repayment option, the IRS will withdraw the NFTL to allow the taxpayer to buy or sell a home and maintain a higher credit rating.
Payment Plan With an IRS Installment Agreement
The last option and most common is the installment agreement that is available to taxpayers with up to $50,000 tax debt. This installment agreement allows for repayment over six years. The IRS installment agreement also stops wage garnishment, levies and a notice of federal tax lien from being entered against a taxpayer’s property. If a taxpayer can make monthly payments based on their income and assets owned, without increased economic hardship, then this is likely the option that the IRS will accept from a taxpayer. A careful analysis must be performed to determine if a taxpayer has the means to pay the tax over six years. There may be cases where the IRS will prefer faster repayment due to the statute of limitations running on older tax years. Understanding options when older tax debts are outstanding is worthwhile for taxpayers and seeking professional help from a tax attorney is advisable.
How to Apply for the IRS Fresh Start Program
Depending on the program, the IRS has forms to complete and submit. Partial payment of the tax debt may be required at the time of submission for the IRS to review the application and make a decision to accept or reject the application. The IRS also requires all outstanding tax returns to be filed prior to or at the time of filing one of the IRS Fresh Start Program applications. The IRS may or may not review the returns but the returns provide the IRS with a baseline to assess and begin collecting tax debts.
Taxpayers should also understand that the programs must be completed once the IRS accepts the application. For the OIC program, this means timely filing returns going forward. Missing returns or payments will void the OIC and penalties, interest and enforcement actions will restart.
Contact Steiger Tax Law If You Have Questions on The IRS Fresh Start Program
If you have substantial tax debts and need assistance, call tax attorney Andrew Steiger at Steiger Tax Law for help. He will review your options for dealing with your tax debts, discuss any unfiled returns and review IRS information as part of a free consultation. He can help you file outstanding returns and also discuss any state tax debts and how your IRS tax debts are affected by those. Further, if you are facing financial hardship and other debts in addition to your tax debts, he can advise you on bankruptcy options and what a comprehensive plan would look like to get you back on sound financial footing. Call tax attorney Andrew Steiger at (248) 259-6367 or email him at firstname.lastname@example.org.