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.
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:
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.
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:
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:
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:
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.
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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:
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.
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:
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.
Reference
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.
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