A new year could mean a financial fresh start. The IRS Fresh Start program was created to help struggling taxpayers and small businesses. In 2023, taxpayers are still asking how the program works. Here are some key details about the program.
The History of the Fresh Start Program
The Fresh Start Initiative was established in 2011 to give first-time tax offenders leniency and the opportunity to solve their tax issues through consolidated tax bills and payment arrangements. Shortly after launching the program, the IRS made it easier to remove federal tax liens. It also allowed taxpayers to come to more favorable payment arrangements with the IRS. One year after that, the IRS gave more taxpayers access to the Offer in Compromise (OIC) program.
The Fresh Start Initiative can help stave off IRS collection activities that include:
Bank Levy: The IRS can seize funds from your bank accounts.
Wage Garnishment: A portion of your wages can be deducted and sent directly to the IRS.
Seizure of Assets: The IRS may seize personal property, such as a car or home, to satisfy the tax debt.
Filing Lawsuits: Taking legal action to recover the owed amount through court proceedings.
Seizing Tax Refunds: Offsetting unpaid taxes with federal or state tax refunds owed to the taxpayer.
Federal Tax Lien: Filing a legal claim against the taxpayer’s property to secure the debt, making it difficult to sell or refinance assets.
All this said, many taxpayers ask, “How much does the IRS Fresh Start Program cost?” It’s important to understand that the IRS Fresh Start Program itself does not have a specific cost, as it is not a single program but rather a collection of tax relief options offered directly by the IRS. However, there may be fees associated with the specific components of the program, as well as potential costs if you hire a tax professional to assist with the application process.
Eligibility Requirements for the IRS Fresh Start Initiative
The IRS Fresh Start Initiative aims to provide relief to individuals and businesses struggling with tax debt by making it easier to pay off their balances and avoid severe collection actions. To qualify, taxpayers must meet specific eligibility requirements depending on the program they apply for, such as installment agreements, Offer in Compromise (OIC), penalty abatement, or lien withdrawal. Below are detailed eligibility criteria for the initiative’s primary components.
Streamlined Installment Agreements
Individuals with tax debt up to $50,000 may qualify for streamlined installment agreements, which allow for monthly payments over a maximum of 72 months. If the debt exceeds $50,000, taxpayers must reduce their balance below this threshold or provide detailed financial documentation to the IRS. Applicants must have filed all required tax returns to be eligible. Taxpayers must stay current with ongoing tax obligations, such as estimated tax payments or proper withholding amounts from wages, to maintain eligibility. Defaulting on a payment plan could result in reinstated penalties, interest, or liens.
Offer in Compromise (OIC)
The IRS Fresh Start Program could potentially reduce the amount you owe through an Offer in Compromise. Through an OIC, taxpayers may negotiate to settle their tax debt for less than the total owed, provided they meet strict eligibility criteria. To qualify for an OIC, taxpayers must demonstrate that paying the full amount owed would cause financial hardship. This is determined by the IRS using the Reasonable Collection Potential (RCP), which evaluates income, living expenses, assets, and earning potential. Taxpayers must have filed all required tax returns and made any necessary estimated tax payments for the current year. Businesses seeking an OIC must have submitted all required federal tax deposits. Individuals or businesses in active bankruptcy proceedings are not eligible for the OIC program.
Penalty Abatement Options
Taxpayers may qualify for First-Time Penalty Abatement (FTA) if they have not incurred penalties (other than estimated tax penalties) for the prior three tax years and are compliant with filing and payment obligations. Reasonable Cause Penalty Relief is available for those who can demonstrate that unforeseen circumstances, such as natural disasters or medical emergencies, led to noncompliance. Applicants must file all outstanding tax returns and either pay their debt in full or enter into a payment agreement with the IRS. Compliance with current-year tax obligations, such as withholding or estimated payments, is mandatory to avoid disqualification.
Federal Tax Lien Withdrawal
Taxpayers owing $25,000 or less can request a lien withdrawal if they set up a Direct Debit Installment Agreement (DDIA) and make three consecutive on-time payments. Those who fully pay their tax debt can also request the withdrawal of the lien by submitting Form 12277, “Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.” To qualify for lien withdrawal, taxpayers must have filed all required returns and be in compliance with ongoing tax obligations. Businesses and individuals must ensure that no active bankruptcy proceedings are in place, as this makes them ineligible for lien withdrawal or other Fresh Start benefits.
By meeting these eligibility requirements, taxpayers can take advantage of the IRS Fresh Start Initiative’s programs to manage their tax liabilities effectively. Proper documentation and compliance with tax laws are essential for successful applications.
Fresh Start and Extended Installment Agreements
Extended installment agreements offer taxpayers a manageable solution for resolving significant tax debts. Here are some key features and considerations for these arrangements.
Eligibility Requirements
To qualify, taxpayers generally need to meet these conditions:
Owe more than $50,000 or be unable to pay the debt within the standard 72-month repayment period.
Have filed all required tax returns and remain compliant with current tax obligations.
Extended Payment Period
The IRS may extend repayment terms beyond the usual 72 months, depending on your financial circumstances. Monthly payment amounts are determined by evaluating your income, expenses, and assets to ensure they align with your ability to pay.
Financial Disclosure
Taxpayers must complete Form 433-A (Collection Information Statement for individuals) or Form 433-B (for businesses). The IRS uses this financial snapshot to calculate a feasible monthly payment and assess your eligibility for extended terms.
Securing the Debt
For significant balances or extended repayment periods, the IRS may file a Notice of Federal Tax Lien to protect its interest in your assets. This tax lien could affect your ability to obtain credit but ensures the IRS’s claim is prioritized.
Costs and Fees
Setting up an installment agreement incurs a fee, though low-income taxpayers may qualify for reduced rates. Keep in mind that interest and late payment penalties continue to accrue until the full balance is paid.
Automatic Payment Options
Direct Debit Installment Agreements (DDIA) allow payments to be automatically deducted, reducing the risk of default and ensuring compliance. This option often simplifies the process for both parties.
Default Risk
Failure to make payments or stay current with other tax obligations can lead to the termination of the agreement. If default occurs, the IRS may resume aggressive collection actions, including wage garnishments or bank levies.
Duration and Review
Installment agreements are subject to periodic review. The IRS may request updated financial information to reassess your ability to pay, ensuring the agreement remains fair and sustainable. These extended installment plans provide a pathway for taxpayers to regain financial stability while addressing their tax liabilities.
Six-Month Extension for the Unemployed
The IRS offers a six-month extension for certain individuals who face challenges in filing their taxes, including unemployment benefits received during the year. These extensions can alleviate penalties, providing additional time to organize finances and file taxes correctly.
Eligibility: Unemployed individuals receiving unemployment benefits may qualify for an extension.
Penalty Relief: The extension helps avoid penalties for late filing, offering more time to submit accurate returns.
Automatic Approval: The six-month extension is typically automatic for those who file Form 4868.
Extended Deadline: Taxpayers can file their returns by October 15, instead of the usual April deadline.
Unemployment Benefits: Unemployment benefits are taxable, and the extension provides more time to address these taxable amounts.
It’s important to understand eligibility and ensure that the extension is properly applied to avoid penalties. For help, consider consulting with a knowledgeable tax professional.
Is the IRS Fresh Start Program Legitimate?
The IRS Fresh Start Program is a legitimate initiative introduced by the IRS to help individuals and businesses struggling with tax debt. Launched in 2011 and expanded over the years, the program provides a variety of options designed to make it easier for taxpayers to pay off their debts, avoid penalties, and stay compliant with their tax obligations. The program aims to prevent financial hardship while ensuring the IRS can still collect what is owed.
Why Some Doubt Its Legitimacy
The legitimacy of the IRS Fresh Start Program is sometimes questioned due to misinformation and misleading marketing from third-party tax relief companies. These companies often exaggerate the benefits or misrepresent the qualifications for the program to sell their services. It’s important to note that the Fresh Start Program is an official IRS initiative, and taxpayers can access its benefits directly through the IRS with or without paying a third party.
How to Verify and Apply
Taxpayers can verify the program’s legitimacy by visiting the official IRS website or consulting with a licensed tax professional. Applications for programs like installment agreements or Offer in Compromise are submitted directly to the IRS, often with specific forms such as Form 9465 (Installment Agreement Request) or Form 656 (Offer in Compromise). While the IRS Fresh Start Program is not a blanket solution for all tax problems, it offers valuable tools for those who qualify. To avoid scams, always rely on official IRS resources or reputable tax advisors.
Tax Help for Those Who Owe
The Fresh Start program can really help taxpayers who owe the IRS but don’t necessarily have the funds to pay their debt. Working with an experienced tax relief company can help ease the process. If you are wondering if you are eligible for the Fresh Start program, we can help. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
If You Need Tax Help, Contact Us Today for a Free Consultation
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