This IRS is not your friend. But—importantly—the IRS is not your enemy, either.
So if you find yourself owing money to the IRS and are unable to pay, it’s better to ask the IRS for help rather than avoiding or ignoring the fact that you must pay taxes. If you truly owe money to the IRS, you will have to pay—but you won’t necessarily have to pay the full amount if you’re able to take advantage of IRS programs designed to help qualifying taxpayers in first-time tax trouble.
Former IRS Commissioner Doug Shulman recognized that being rigid and inflexible was not a helpful stance for the IRS or the taxpayer. By lessening the negative impact on taxpayers, “people will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens,” Schulman said in a 2011 press release announcing the IRS Fresh Start program.
In 2011, the IRS announced a series of updated policies and programs to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. The goal of this initiative was to allow the IRS to at least collect some of the money owed, and to give the taxpayer a “fresh start” with their tax liabilities. In 2012, Fresh Start was expanded to allow even more individuals and businesses to participate.
Fresh Start is not a “program” per se, but rather a series of policies and guidelines that apply to various tax payment avenues, such as installment agreements, offers in compromise, and tax liens.
An offer in compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Offer in compromise agreements are perhaps the most appealing facet of Fresh Start. While offers in compromise have been around as an option for quite some time, Fresh Start expanded and streamlined offers-in-compromise to cover a larger group of struggling taxpayers.
The IRS recognizes that many taxpayers have difficulty paying their tax bills so the agency put in place more common-sense changes to the offer-in-compromise program to more closely reflect real-world situations.
Learn more about offers in compromise here.
A tax lien is a legal claim against all your current and future property. The IRS can put a tax lien on your property for failure to pay taxes. The IRS may be entitled to any proceeds from the sale of real property if any tax liens have not been released.
The Fresh Start program raised the dollar amount that triggers a federal tax lien to $25,000. This move resulted in fewer liens being filed. Fresh Start also makes it easier to have a federal tax lien released once a taxpayer’s outstanding taxes are paid off.
An installment agreement is an option for those who cannot pay their entire tax bill by the due date. Instead of paying the entire tax bill upfront, the taxpayer agrees to monthly direct debit payments.
Fresh Start gives taxpayers who owe up to $50,000 in back taxes an option to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. Late payment penalties are reduced, although interest continues to accrue on the outstanding balance. Fresh Start raised the maximum term for streamlined installment agreements from 60 to 72 months. Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option. Learn more about settling with the IRS here.
To qualify for participation in Fresh Start you must first ensure that you have filed any missing tax returns for you or your business, even if you’re unable to pay them. You must also, generally, ensure that you are current with your estimated tax payments if self-employed or a small business, or that your current withholdings are correct.
If you own a business with employees you must make all required federal tax deposits. You must also be able to prove that you do not have the money or assets to pay your tax bill. You must not be involved in an ongoing bankruptcy proceeding.
For installation agreements for individual taxpayers, you are, in general, eligible for Fresh Start, provided you agree to direct debit payments and:
You must maintain the installment agreement, stay current with tax filings, and make sure that you don’t incur new taxes during the period the installment agreement is in effect.
For offers in compromise, the IRS must determine that your tax liability cannot be paid in full as a lump sum or through a payment agreement. The IRS will look at your income and assets to make a determination regarding your ability to pay.
If your business has genuinely fallen on hard times or suffered an unexpected financial loss, you may qualify for Fresh Start. The IRS takes a careful look at businesses to ensure that the request for OIC or installation agreement is legitimate and not an attempt to take advantage of the system.
If your business owes $25,000 or less you may qualify for a streamlined installation agreement with payoff in 24 months. To be eligible for Fresh Start your business must be current with its federal tax filings and payments, and it must be the business’s first time falling behind with payments to the IRS.
Fresh Start is an opportunity to make the IRS an offer that you can actually pay. You benefit from being freed of the weight of burdensome payments, and the IRS benefits from getting something rather than nothing.
Even if you don’t think you’ll qualify for Fresh Start, there may still be a wide range of options available to help you reduce your tax liability. Speaking to a tax expert will help you determine the best way to put your IRS problems behind you.
While it is possible to go through the Fresh Start process on your own, be aware that it’s a notoriously difficult and time-consuming process. If your documentation isn’t flawless, then your request will be denied, your time is wasted, and you’ll still owe the IRS. If you think you or your business could find tax relief through the IRS Fresh Start initiative, you should work with professional tax experts to help you complete the process.
Tax Relief USA has wide-ranging expertise on filing offers in compromise, setting up installation agreements, and navigating the ins and outs of the IRS Fresh Start program. We work directly with the IRS every day on behalf of our clients, and we’d be happy to work with the IRS for you, so you don’t have to.
If you think you could benefit from Fresh Start or if you need an expert tax opinion for your situation, please contact Tax Relief USA today for a free tax consultation.