February 28, 2017

IRS Fresh Start InitiativeIn 2011, the Internal Revenue Service executed the first of numerous programs that offered collection alternatives to taxpayers struggling with financial hardship due to the 2008-2009 economic crisis. Collectively known as the Fresh Start Initiative, this program aimed to make it easier for taxpayers to settle their tax debits quickly and more easily.

The Fresh Start Initiative is not one specific program, but is instead a series of changes made to the policies and procedures of current IRS collection actions. These changes aim to help both the individual taxpayer and the small business that face an overdue tax liability.

Tax liens, installments agreements, and offers in compromise are three main areas affected by the Fresh Start Initiative.

Tax liens

Prior to the implementation of the Fresh Start Initiative, a tax lien could be filed if a taxpayer owed less than $10,000 in back taxes. Today, the IRS will not usually file a notice of tax lien to unless a taxpayer owes back taxes amounting to more than $10,000.

This change is significant as a notice of federal tax lien can greatly impact a person’s credit score, and can therefore affect his or her ability to sell property, loan money, and conduct financial transactions. If a taxpayer meets specific requirements set by the IRS, the Fresh Start Initiative may also remove a tax lien notice.

Installment payments

Taxpayers who owe back taxes can avail of several different types of installment agreements such as guaranteed installment agreements, partial payment installment agreements, streamlined installment agreements, and non-streamlined installment agreements.

The Fresh Start Initiative makes streamlined installment payments more accessible, which can ultimately reduce tax penalties. Taxpayers that owe up to $50,000 in back taxes can opt to pay monthly direct debit payments for as much as 72 months. Taxpayers will also have less paperwork to do compared to other types of installment agreements, as the IRS does not require the submission of a financial statement when using the streamlined installment payment process.

Taxpayers that owe more than $50,000 in back taxes may still be entitled to make installment payments, but may need to take extra steps such as providing a financial statement to the IRS.

Offers in compromise

An offer in compromise or OIC is an agreement with the IRS that entitles a taxpayer to settle a tax debt for an amount lower than the full amount.

The Fresh Start Initiative streamlines and expands the OIC process, making it easier for taxpayers to utilize this payment option. Changes in the OIC process include allowing for the repayment of the taxpayer’s student loans, allowing for the payment of local and state taxes, revising the way the future collection potential is calculated, and adding new types of expenses in the Living Expense category thus increasing the amount allowed for certain living expenses.

Prior to 2012, the OIC option was only made available to taxpayers with an annual income lower than $100,000 and who owed less than $50,000 in back taxes. Today, the streamlined OIC covers all taxpayers requesting an OIC with no dollar limitations. Take note though that the IRS only accepts an offer if it believes that the taxpayer is unable to pay the full amount through a payment agreement or as a lump sum.

To qualify for the Fresh Start Initiative, a taxpayer must file all tax returns on time, and make all the required estimated tax payments for the present year. Other qualifications for the different payment alternatives depend on which option the taxpayer intends to use.

Categories: IRS, Tax Tips