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IRS Fresh Start

Taxpayers with outstanding back taxes can suffer devastating penalties, including high-interest payments and property seizure — on top of what they already owe the IRS.

After the 2007-2009 recession, the IRS recognized many Americans still faced insurmountable challenges in fulfilling back tax obligations. Many of them were honest, honorable citizens who had endured periods of severe financial stress and wanted to make payments without threatening their livelihoods. To help those people, the IRS launched the Fresh Start initiative.

Summary

The IRS introduced Fresh Start in 2011 as a way to alleviate payment amounts over a period of six to seven years.

Taxpayers have a few structural options in applying for the Fresh Start initiative

What is Fresh Start?

The IRS introduced Fresh Start in 2011 as a way to alleviate payment amounts over a period of six to seven years. The program was conceived as a “second chance”.

The Fresh Start program calculates a reasonable IRS payment plan based on the debtor’s current income and the worth of their liquid assets (stocks, mutual funds, bank accounts, and so forth). The program helps debtors avoid the tactics and penalties the IRS uses to collect outstanding debts, including interest payments, tax liens, seizure of assets, and wage garnishment.


What changes did Fresh Start initiate?

When it launched in 2011, Fresh Start made significant tax code changes to facilitate repayment of back taxes. Some of the most significant alterations focused on federal tax liens (FTLs), the government’s seizure of properties.

Fresh Start raised the level that triggered the activation of FTLs from $5,000 to $10,000. It also made it easier for taxpayers to be released from FTLs upon the full repayment of their debt and offered streamlined agreements to debtors repaying their back taxes through direct debit.

The IRS made further changes to Fresh Start in 2012. These amendments loosened qualification requirements for the Offer in Compromise (OIC) program and small businesses seeking installment payment plans. They also revised some of the formulas used to calculate future income and how much taxpayers in the program could afford to pay each month.

What are the qualifications for Fresh Start?

Eligibility for Fresh Start depends on the sort of repayment plan the taxpayer agrees to. There are no entrenched, all-encompassing requirements. However, individual applicants for the Fresh Start initiative usually must meet a few standards and baselines to qualify:

  • First-time debtors.

    The applicant must be considered a new debtor. Those with documented histories of falling behind on taxes, IRS collections, or prior tax repayment plans are not eligible.

  • Maximum amount due.

    In basic agreements, taxpayers in the Fresh Start program must owe no more than $50,000 in back taxes. However, the initiative can also be used to pay down higher tax liabilities until the outstanding amount totals $50,000.

  • Ability to repay.

    The IRS must be satisfied that the taxpayer can pay off their debt in full within a certain time, commonly between 60 and 72 months. Those filing an Offer in Compromise must be able to pay off their tax bill within 12 months.

  • Keeping current with filings.

    Fresh Start program entrants must keep all their tax filings up to date through the current tax year, abide by the installment agreement, and avoid incurring new debts while in the Fresh Start program.

Some “bonus” conditions may apply to taxpayers in the Fresh Start initiative. Those owing less than $25,000 could qualify for removal of federal tax liens, and some may qualify for relief from penalties typically levied on tax debtors.


IRS FRESH START

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How do businesses qualify for Fresh Start?

Businesses can also take advantage of the Fresh Start initiative, although the requirements differ slightly from individual taxpayers. A business must owe less than $25,000, and the IRS must be confident the business can fulfill their back taxes within 34 months. Like individuals in the program, businesses must be owe for the first time and keep up with tax filings and agreements.


What options are available under Fresh Start?

Taxpayers have a few structural options in applying for the Fresh Start initiative:

  • Extended installment agreement.

    The basic form of the agreement through Fresh Start is the one most debtors agree to. The taxpayer gets six years to pay off their debt entirely. In return, the IRS waives penalties and interest charges, and suspends collection activities such as wage garnishment, liens, and property seizures.

  • Offer in Compromise.

    In certain cases, the IRS may accept a debtor’s offer to settle their outstanding tax bill for less than the total amount owed. The requirements for an Offer in Compromise are much more stringent, and the IRS rarely approves such an agreement. At the very least, debtors must propose a repayment structure that accurately reflects their current financial status. They must also have no missing tax returns and cannot be the subject of bankruptcy proceedings or DOJ investigations.

  • Tax lien withdrawals.

    If a taxpayer agrees to repay their tax bill via automatic debits from their bank account, they may request for easement of tax liens.


How to apply for Fresh Start

Unsurprisingly, applying for the Fresh Start program requires thoroughness, meticulous documentation, and considerable patience. The basic steps are to:

  • Collect financial information.

    This is the key step, as IRS agents use financial records to judge your need for easement. Gather every bit of financial documentation from the relevant tax period as you can; when in doubt about whether a certain record is necessary, err on the side of inclusion.

  • Complete the appropriate IRS form.

    The IRS website provides forms for applying to Fresh Start initiatives: Form 9465 for installment plan requests, and Form 656-B for OIC requests. There may be more forms to finish; look for them to ensure you complete them all.

  • Mail applications and documents to the IRS.

    Always use certified mail to ensure the IRS receives your application. The USPS’s Return Receipt option verifies delivery.

Although the process is relatively straightforward, retaining a tax attorney is strongly recommended when applying for relief through Fresh Start. The IRS may have launched the program, but you still must negotiate with them after you apply, and it’s wisest to assume agents look for reasons not to approve your application. A knowledgeable tax attorney is an extremely valuable, irreplaceable ally when conferring with the IRS.


How to manage a Fresh Start installment plan

Fresh Start allows taxpayers to comfortably exist as they compensate for past tax liabilities. To ensure success with an installment repayment plan:

  • Make as much of a first payment as you can afford.

  • Faithfully keep up with monthly payments, or better yet, set up an automatic debit plan. Missed or delinquent payments may cause the IRS to cancel the installment plan altogether.

  • File all tax returns on time.

  • Maintain contact with your tax attorney as necessary, or if your financial condition changes.


IRS FRESH START

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Frequently Asked Questions

  • What If I Owe Money to IRS but Have Child Support Payments?

    Wage garnishments are not established unless you are severely behind on your child support payments. You are considered in arrears if you haven't made full child support payments in several months. By law, 50% of your pay can be garnished for child support.

  • Can the IRS Take My Retirement Money?

    If you owe in back taxes, the IRS can garnish your wages, 401k, IRA, freeze your bank accounts, and seize and sell your personal property. This includes your home, your vehicle, and anything else you might own that could be of significant financial value. You may end up facing these threats for years, which is, unfortunately, something that the IRS has the legal power to do.