FRESH START INITIATIVE
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WHAT IS THE FRESH START INITIATIVE?
The Fresh Start Initiative was created in 2009 and was initially called the IRS Fresh Start Program. While it’s been titled a “program,” the Fresh Start Initiative isn’t really a program. Instead, “Fresh Start Initiative” or “Fresh Start Program” is a blanket term for a variety of changes the IRS made to their policies and collection procedures.
These changes were designed to help taxpayers pay their outstanding tax debt in a more manageable way. There are features of the Fresh Start Initiative that can allow those with higher tax debts to pay back their debt through streamlined installment agreements or the Offer in Compromise program. Additionally, the changes made to IRS policy with the Fresh Start Initiative can sometimes help taxpayers avoid tax liens or have existing tax liens removed.
HOW LONG HAS THE IRS FRESH START INITIATIVE BEEN IN PLACE?
The IRS Fresh Start Initiative has been in place since 2009, though it was first called the IRS Fresh Start Program. The IRS originally implemented the policy changes of the Fresh Start Program after the economic recession of 2008-2009, when many Americans were struggling with unemployment. While the IRS made the largest changes in to their policies in recent history when they implemented the Fresh Start Program, they have made more changes over the years. The information on this page reflects current IRS policies as they exist in 2019.
FRESH START INSTALLMENT AGREEMENT
With the implementation of the Fresh Start Program, the IRS made many changes to installment agreements in order to help taxpayers struggling with back taxes.
An installment agreement is an agreement to make monthly payments to the IRS to settle your tax debt. When a taxpayer enters into an installment agreement with the IRS, they’re making an agreement to make regular monthly payments to the IRS (over a set period of time) to fully pay off their debt. Installment agreements can give relief to those who cannot pay their full unpaid taxes as a lump sum, allowing them to pay in smaller, more manageable payments. It can also help to lower the likelihood of certain IRS actions, such as tax levies, as the IRS will generally not take later stage IRS collection actions against those who are in an installment agreement and are making their agreed payments on time each month.
Installment agreements are subject to certain time limits, which can vary depending on your unique circumstances. Additionally, the amount a taxpayer must pay per their payment plan each month will vary, depending on their debt amount and the amount the IRS thinks they can pay. While the amount an individual taxpayer must pay is ultimately up to the IRS, monthly payment amounts can be negotiated to a certain extent.
Whether you enter into a guaranteed installment agreement, a streamlined installment agreement, a partial-pay installment agreement, or a stair-step installment agreement, it’s important to honor your payment agreement once you’ve entered it (meaning, always pay your monthly payment on time). If you miss a payment, you can be subject to a failure-to-pay penalty and the IRS can decide to cancel your installment agreement.
The IRS offers a variety of payment options for installment agreements: online payments, direct debit payments, money orders, checks, credit card, and over-the-phone payments. Depending on your installment agreement terms, however, you may not be able to use all of these options, as the IRS may require you pay only through certain methods. Additionally, your choice of payment method can affect your installment agreement’s application fee (how you apply can also affect this fee) and can come with payment fees.
Installment agreements have been an option for those struggling with tax debt for quite a while, but the Fresh Start Initiative came with changes that can help more taxpayers take advantage of them. Let’s take a look at the terms for long-term, short-term, and business installment agreements as they exist today.
LONG-TERM IRS INSTALLMENT AGREEMENT TERMS FOR INDIVIDUALS
Long-term installment agreements may be available to taxpayers who have less than $100,000 in total tax debt (including penalties and interest) and have filed all their required returns. Those who owe less than $50,000 in total can apply online, while those who owe between $50,001 and $100,000 in total must apply through the mail or in person.
Generally, those who owe less than $10,000 will have their long-term installment agreement automatically approved if: they agree to pay their full balance within 36 months, they agree to pay and file on time in future tax years, they did not apply for other installment agreements within the last five years, they’ve filed all their tax returns, and they’ve had no late filings in the previous five years.
Those who owe between $10,001 and $100,000 in total must apply for long-term installment agreements and have their submission reviewed by the IRS before it can be approved. For those with higher debts, it’s advised that you work with a tax professional when attempting to set up a long-term installment agreement. A tax professional can help you to enter into an installment agreement that works for both your financial circumstances and IRS requirements.
SHORT-TERM IRS INSTALLMENT AGREEMENT TERMS FOR INDIVIDUALS
Short-term installment agreements are similar to long-term installment agreements, except in duration: they require that you pay your full debt within 120 days. All short-term IRS installment agreements can be applied to online, including short-term installment agreements for those who owe up to $100,000.
SMALL BUSINESS INSTALLMENT AGREEMENT TERMS
There’s an installment agreement specifically for small business owners who owe less than $25,000 in back taxes for their business: the In-Business Trust Fund Express installment agreement. To qualify for this installment agreement, your small business must currently have employees. If you’re approved, you’ll have 34 months to pay your full tax liability.
For those who owe under $25,000 but more than $10,000, you must make your In-Business Trust Fund installment agreement payments through a Direct Debit installment agreement.
FRESH START INITIATIVE OFFER IN COMPROMISE
For taxpayers who can’t pay the full tax debt they owe the IRS, entering into an Offer in Compromise (OIC) can be a huge relief. An OIC is a program that allows taxpayers to pay less than the full amount they owe to the IRS. The Fresh Start Initiative simplified and expanded the OIC program, giving taxpayers more opportunities to qualify.
HOW DO I QUALIFY FOR A FRESH START OIC?
An OIC can be challenging to enter, as you do need to meet certain strict qualifications. Essentially, you’ll need to prove that you can’t reasonably pay the full debt you owe to qualify for an OIC (or in one circumstance, that you don’t legally need to). The IRS determines this by assessing three different factors:
Doubt as to Liability
Doubt as to Collectibility
Effective Tax Administration
Any of these factors being met can allow you to be accepted for an OIC. Let’s break down each of these three factors to help you understand whether or not you may qualify for an OIC.
The IRS may accept an OIC if they determine there’s doubt as to liability. To accept under this condition, the IRS will have to agree that there’s a genuine dispute about your tax liability amount. This means that they’ll have to agree that your tax debt shouldn’t exist or should be less according to the law.
When the IRS assesses doubt as to credibility, they’re looking to see whether or not they’d be able to collect your back taxes in any way other than an OIC. Essentially, the IRS will take a close look at your assets and estimated future income to see what you can pay and ensure you can’t pay your full amount before approving you for an OIC due to doubt as to credibility.
The IRS can also accept an OIC based on effective tax administration. With this option, the IRS will have to determine that you have the tax amount you legally owe and can pay in full, but doing so would cause you economic hardship or would be unfair and inequitable due to some kind of exceptional circumstance. For example, if a taxpayer could not reasonable pay their living expenses (such as their rent, monthly bills, and food expenses) and also pay their full tax liability amount, they may qualify under effective tax administration.
In addition to qualifying under one of these three circumstances, to qualify for an OIC you must be up to date on your tax filing and must not have any open bankruptcy proceedings. If the IRS accepts your OIC, you’ll have two payment options: a lump sum cash offer or a periodic payment offer.
GETTING AN IRS FRESH START INITIATIVE OFFER IN COMPROMISE APPROVED
An OIC can be challenging to enter, as the IRS is strict about who qualifies because they want to collect as much of your owed tax as possible. For those who do qualify, however, getting an OIC can be an enormous relief, as it reduces your total amount of back taxes due. If you think you may qualify for an OIC and would like to enter one, we always advise seeking the services of a tax professional, which can greatly increase your chances of approval.
IRS FRESH START INITIATIVE LIEN WITHDRAWAL
The Fresh Start Initiative changed the process of federal tax liens. Now, the standard amount you must owe to risk facing a tax lien is $10,000 (an increase from the previous amount). Under certain circumstances, those who owe less than $10,000 can still be subject to a lien and receive a notice of federal tax lien. But still, the standard limit has increased, which protects more taxpayers from the threat of a lien.
Additionally, the Fresh Start Initiative created new terms for lien withdrawals. Under the new IRS policies, taxpayers have the right to file for a withdrawal of a lien if their tax debt has been fully paid and they meet certain other requirements. This is excellent news for those have had a lien against them, as a lien withdrawal comes with certain benefits that other lien removal strategies do not.
There are other ways to have a lien removed, like paying off your full tax debt or getting a tax lien discharge. But unlike paying off your lien or getting a lien discharge, a lien withdrawal both ends your lien and erases the record of your lien. It can wipe a lien off your credit report as if the lien was filed in error, which can be a huge relief if a lien is impacting your credit.
FRESH START INITIATIVE 2019
Many people wonder if the Fresh Start Initiative is still in place today in 2019. While there have been changes to IRS procedures after the Fresh Start Initiative was enacted, these have generally only served to expand the benefits of the Fresh Start Initiative. So, in short, the Fresh Start Initiative is still in place in 2019.
While the new policies of the Fresh Start Initiative are currently still in place, there is no telling how long they will be in place. If you’re currently suffering from tax debt and would like to take advantage of the Fresh Start Initiative, it’s a good idea to consult a tax professional in order to enter into one of its policies immediately and take advantage of it while you can.
IRS FRESH START INITIATIVE QUALIFICATIONS
Because the IRS Fresh Start Initiative is not a program on its own, but merely a name for a group of numerous tax policy and program changes, the qualifications for the Fresh Start Initiative can vary widely. Whether or not you qualify will depend on what type of IRS agreement or plan you’re trying to take advantage of.
ARE THERE LIMITATIONS ON WHO CAN USE THE FRESH START INITIATIVE?
As with qualifications, the limitations for who can use the Fresh Start Initiative policies can vary widely depending on the type of agreement or program you’re seeking to enter. The Fresh Start Initiative’s policies can be a bit complicated to explain, as there are numerous ways both your desired IRS agreement and your personal financial circumstances can affect what might limit you, personally. While we can’t predict what your exact limitations might be without knowing your exact circumstances and tax problems (though we can do this if you call us for a free personal consultation), we can tell you a few of the most common limitations on who can receive tax penalty reprieves provided by the Fresh Start Initiative.
Here are three of the most common limitations on who can use the IRS Fresh Start Initiative:
- Taxpayers who earn more than $100,000 per year as a single filer or $200,000 per year as a married couple are generally disqualified.
- Taxpayers who are self-employed must prove that they have had a minimum of a 25% drop in income to qualify.
- Taxpayers must have a tax balance of under $50,000 at the end of the tax year in order to qualify.
HOW LONG WILL A FRESH START WITH THE IRS TAKE?
The amount of time a Fresh Start with the IRS will take for you will depend on your unique circumstances. Times can vary for both the entirety of the process (meaning, how long it will take for your tax balance to be settled) and the application process. Generally, however, know that it often takes several months to begin a Fresh Start Initiative agreement or plan. And in certain outlier cases, it can take up to a year.
If you’d like to enter into a Fresh Start Initiative agreement or plan with the IRS, contact us today for a free consultation on your unique circumstances, during which we can give you more information on your options and a timeline estimate.
CAN THE IRS REOPEN MY DEBT AFTER A FRESH START INITIATIVE SETTLEMENT?
Unfortunately, the IRS can (and does) sometimes reopen debt after a Fresh Start Initiative settlement. Most commonly, this can happen because one or more terms of a taxpayer’s agreement is broken. For example, someone might miss an agreed-upon tax payment or pay their taxes late within five years of the end of their settlement package. If you break your agreement with the IRS, they can pursue the full amount you originally owed, even if you completed a settlement package that allowed you to pay less than your full tax liability.
The Fresh Start Initiative expanded many beneficial agreements and programs for taxpayers who need to pay off burdensome tax debt. But this wide expansion means that the rules for each person’s unique IRS plan can vary widely, which often leads to taxpayers being confused about what exactly they’re required to do to hold up their end of their deal with IRS.
To ensure your debt is not reopened after a Fresh Start Initiative program is completed, it’s best to seek the advice of a seasoned tax professional. A tax professional can help you set up the best plan for you and help you understand what you need to do to successfully enact your plan. Additionally, even if you have already entered into an agreement with the IRS on your own, it’s a good idea to consult with a tax professional to ensure your fully understand your requirements and that you do not accidentally break your agreement with the IRS.
If you need help with a Fresh Start Initiative agreement or program, call Tax Defense & Relief Group today for a free consultation about your tax relief options. Our tax professionals can help you get achieve tax resolution by creating the best plan for your unique circumstances and can advise you on the terms of any existing plans you may have in place.
