If you’ve heard about the IRS’ Fresh Start program for tax debt relief, you may be wondering whether you qualify and what options are available to you. Fresh Start is a helpful initiative that makes it easier for some taxpayers to pay their back taxes and avoid bad consequences like liens, levies, and wage garnishments.
However, there’s also a lot of misinformation and misunderstanding about Fresh Start. The program isn’t a magic wand that can wave away your tax problems. If you want to take advantage of the tax relief programs available under Fresh Start, you’ll need to understand your options and get prepared for a process that’s rarely simple.
What Is the Fresh Start Program?
Fresh Start is a set of tax law changes the IRS created to help individual taxpayers and small businesses during the 2008 financial crisis. You may hear people call it the “Fresh Start Program” or the “Fresh Start Initiative.” Don’t let this confuse you — it’s the same concept. “Fresh Start program” is the more common name, but “initiative” might be more accurate since Fresh Start is a group of tax law updates, not a program you can enroll in.
Fresh Start implemented three major changes to our tax laws:
- Raised the minimum tax debt for a federal tax lien from $5,000 to $10,000 and allowed more taxpayers to avoid liens or have their liens withdrawn
- Raised the maximum tax debt for installment agreements from $25,000 to $50,000 and increased the maximum length of agreements from five years to six
- Reduced the amount of tax debt required to settle with the IRS through the Offer in Compromise (OIC) program
In general, these changes have helped taxpayers. One report showed that in the years following the Fresh Start changes, federal tax liens went down from 488,378 to 195,009.
Unfortunately, some tax resolution firms have put out irresponsible and misleading advertisements related to Fresh Start. As a result, many taxpayers think the options available under Fresh Start will provide a cheap, easy fix for their tax problems, which is rarely true.
Will I Qualify for an Offer in Compromise Under Fresh Start?
Out of all the Fresh Start changes, the updates to the IRS’ Offer in Compromise (OIC) program have made the biggest impact for the most taxpayers. But as we mentioned before, ads from tax firms have exaggerated the ease of qualifying for an OIC.
An OIC is a settlement between you and the IRS. When you secure an OIC, the IRS will reduce the amount of tax debt that you owe, which sounds fabulous: who wouldn’t want their tax debt cut down?
In reality, many taxpayers won’t qualify for an OIC. For example, you probably aren’t eligible if you:
- Have unfiled tax returns
- Can afford to pay your debt in full or have the assets to pay
- Owe a small amount or make a large amount of money
We meet many people at S.H. Block Tax Services who have tried to file for an OIC on their own and received a harsh dose of reality. Not only do these taxpayers receive a rejection, but they give up more information to the IRS than they should and damage their case.
To be eligible for an OIC, you must:
- Have filed all tax returns
- Have received a tax bill from the IRS
- Make all required estimated tax payments for the current year
- Make all required federal tax deposits for the current quarter (if you own a business that has employees)
However, meeting those requirements doesn’t guarantee you’ll receive in OIC — it only means you’re eligible. Once the IRS determines you’re eligible, they will evaluate your situation to try and figure out your level of financial hardship and how likely they are to successfully collect on the full tax debt you owe. At this point, the IRS will consider factors such as your:
- Level of education
- Collection statute expiration date (the amount of time the IRS has to legally collect on the taxes you owe)
You’ll have the best chance of receiving an offer in compromise if you work with an experienced tax resolution attorney. At S.H. Block Tax Services, we have a very high rate of success in securing OICs. The vast majority of our clients get their OIC on our first attempt. And if you’re not likely to succeed with an OIC, we’ll tell you the truth, keep you from wasting valuable time, and explain your realistic options for tax debt resolution.
What About Installment Agreements?
An extended installment agreement is another option to resolve your tax liability. Unlike an offer in compromise, an installment agreement won’t reduce the taxes you owe, but an agreement can help you avoid fees, penalties, garnishments, collections, and other negative consequences of tax debt.
There are three main types of installment agreements:
- Short-term payment plan: If you can pay your balance within 120 days, then a short-term plan is the best option. You can apply online or by phone, mail, or in-person with no setup fee, and you can make payments by check, money order, or card. You’ll have to pay fees for debit and credit payments, and penalties and interest will continue to add up until your balance is paid in full.
- Long-term payment plan: If you can’t pay your balance within 120 days, then you’ll need a long-term payment plan. Different long-term payment options have different associated fees.
- Restructure or reinstatement of an existing payment plan: For an $89 fee, you can update an existing plan. If you qualify as a low-income applicant, you can receive a $43 reimbursement of the fee.
Once you enter into an installment agreement, it’s extremely important to make your monthly payments on time. If you miss payments or pay late, the IRS may decide you are in default and cancel your agreement. At that point, the aggressive collection efforts that stopped with the payment agreement will come back in force. The IRS may garnish your wages, place a lien on your property, or seize assets.
The best way to avoid defaulting on your installment agreement is to set up automatic payments with direct debit. These payments might feel like a hardship at first, but if you incorporate the payments into a realistic monthly budget and stick to that budget, you should be able to make your payments on time and resolve your tax liability.
How Do I Apply for Tax Relief Under the IRS Fresh Start Initiative?
Negotiating with the IRS to try and get an OIC or installment agreement isn’t a quick or simple process, and most people who deal with the IRS on their own won’t succeed. If you decide to negotiate an OIC or installment agreement without help from a tax professional, budget plenty of time for the project and prepare for stress and frustration.
Here are the steps involved:
- Gather your information: Gather and organize as much financial documentation you can find from the tax years in question. This step is very important: your success will depend on your ability to prove through documentation that you need tax relief and can’t pay without it.
- Meet with a tax attorney: Getting the tax relief you need will require a lot of negotiation with the IRS, and trying to negotiate without a lawyer will severely hurt your chances of getting a favorable outcome. Even if you don’t think you need an attorney, you should at least schedule a free consultation with a tax lawyer to get an expert opinion about your situation and your chances of success.
- Fill out the IRS forms: The forms you need are available on the IRS’ website. The form booklet for an OIC is here, and the form for an installment agreement is here.
- Mail your documentation: You’ll need to send your financial documentation to the IRS. Don’t just drop your papers in a mailbox — make sure to use a mailing option that gives you a receipt or other slip for proof.
- Negotiate: You’ll most likely negotiate with an IRS agent throughout the process. This agent is not your friend, and they aren’t out to help you; their job is to get as much money out of you as possible. If you don’t have an attorney, then you won’t have anyone looking out for your interests and protecting your rights during the negotiation process.
Start Resolving Your Tax Issues Today With Help From S.H. Block Tax Services
If you’re struggling with outstanding tax liabilities and would like to learn how one or more of the tax resolution strategies listed above might fit your unique situation, please contact S.H. Block Tax Services today. Our mission is to help you find an efficient and affordable resolution to your tax problems so you can start rebuilding and moving forward.
To schedule your free initial consultation and speak with a tax expert from our team, call (410) 872-8376 or use the contact form on this page.
Treasury Inspector General for Tax Administration. (2015, February 11). Report: The IRS’s Fresh Start Initiatives Have Benefited Many Taxpayers, But Additional Monitoring and Evaluation is Needed [press release]. Retrieved from https://www.treasury.gov/tigta/press/press_tigta-2015-04.htm
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.