What Is the IRS Fresh Start Program and How Does It Work?

Milan_Jovic / Getty Images

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Is your tax bill too much? Are you worried you can’t pay it off in full? Don’t worry, you have options. The Internal Revenue Service (IRS) Fresh Start Program is designed to help taxpayers, including individuals and small businesses, who are having problems and cannot pay their taxes. Find out more about how the program works and whether it is an option that may help you.

Fresh Start Program: At a Glance

• Purpose: The Fresh Start Program is for people and businesses who are having trouble paying their taxes and need feasible options to pay off their tax debt.
• Who it is for: This program is ideally for people and businesses who are facing penalties or collection and need help paying off their taxes because they cannot pay for it upfront. 
• What it helps with: You can get tools via installment payment plans, offers in compromise (OIC), penalty abatement and collection relief through the Fresh Start Program. 

What Is the IRS Fresh Start Program?

These IRS Fresh Start initiatives are for those who cannot pay the full amount they owe but can pay in installments. It is also intended for taxpayers who owe less than $50,000 in taxes. While the program usually doesn’t relieve your tax debt, it does make it easier for you to get caught up on your owed taxes. 

The program works by giving taxpayers additional tax repayment options. When you’re trying to pay off your tax debt without help, you may face tax penalties and fees that increase the amount that you owe, making it difficult to get caught up.

What Fresh Start Includes: The Full Toolbox

The Fresh Start program includes four options. This table will help you see what choices you have when you need to pay off your debt: 

Who Qualifies for Fresh Start Relief

Here are the qualifications for Fresh Start relief:

• Current on tax filings: You must be current on your tax filings for the last three to six years.
• Withholdings must be correct: If you’re a current W-2 employee, your withholdings must be accurate.
• No active bankruptcy: You cannot have an active bankruptcy. 
• Debt requirement: For a streamlined installment agreement, you cannot owe more than $50,000. 
• No record of a crime: You cannot be involved in tax evasion or fraud.
• You must have the ability to pay: You can make consistent, regular payments.

The Most Common Fresh Start Options Explained

Here’s a breakdown of the most common Fresh Start options:

Installment Agreements

If you qualify for this option, as the name would suggest, you would be allowed to break your payments into reasonably more affordable monthly payments. These payments to the IRS would continue until the debt is paid in full.

You should note that once the debt dips beneath $25,000, previously existing tax levies and liens will be removed. 

Offer in Compromise

OIC is when you are eligible to settle for a reduced amount rather than having to pay the full amount you owe. Here are some key requirements you must meet:

• You are not currently involved in a bankruptcy case.
• You’ve made all estimated payments on your filed tax returns.
• You have an approved extension for your current tax year return. 
• If you are self-employed, you’ll need to verify you’ve made your last two deposits, in addition to your current one. 

Penalty Abatement

For this method, you will need to prove to the IRS that the reason you haven’t paid your tax bill is both reasonable and worthy of penalty relief.

If they accept the reason you’ve provided, you may have your penalties forgiven. This can make paying down your tax debt a much more achievable goal. 

Currently Not Collectible

Unlike the other three payment options, CNC is not a method but a status. It allows payments to be put on hold during times of severe financial hardship.

• Eligibility depends on your ability to show that paying both living expenses and back taxes will cause more financial hardship.
• It does not forgive tax debt but delays payment until you are more financially stable.

What Fresh Start Can and Can’t Do

The Fresh Start can open up possibilities, but you have to be realistic about what the program can and cannot do:

What the Program Can Do

• Allow you to make more manageable monthly payments
• Give you the space to even out your finances
• Pause aggressive collection activity 
• Reduce total debt in certain circumstances 

What the Program Cannot Do

• Your debt will not automatically go away.
• Not every individual will qualify.
• If you default, it won’t stop collections.
• The program cannot fix unfiled returns. 

How To Apply for Fresh Start Relief

You can follow these steps to apply for the program:

1. Choose the Fresh Start option that fits your situation: You’ll need to select the specific initiative you’re applying for — such as a payment plan, OIC or penalty relief. The IRS website provides links to each option.
2. Review eligibility requirements carefully: Each Fresh Start option has different rules and documentation requirements. Before applying, confirm that you qualify and note what information you’ll need to submit.
3. Gather required documents and information: What you need depends on the option you choose. For example, you may need to provide your bank routing and account numbers, have a valid ID ready or create an ID.me account.
4. Complete and submit the application: You can apply directly through the IRS website or submit forms by mail, depending on the relief option. Take time to complete the application accurately to avoid delays.
5. Follow the plan terms after approval: Once approved, you must strictly follow the plan’s rules. Missing payments or violating terms can result in removal from the program.
6. Stay compliant going forward: In addition to paying down your existing tax debt, you must file all future tax returns on time and pay new taxes owed to remain in good standing.

While you can apply on your own, the process can be confusing. If you’re unsure how to complete the application or interpret requirements, a tax professional or tax resolution service can help guide you.

Applying Online vs. By Mail

Applying Online

• Best for standard or streamlined installment agreements
• Less paperwork required
• Faster approval in most cases

Applying by Mail

• Often required for more complex situations
• More paperwork and follow-up
• Slower processing times

Tips To Improve Your Chances of Approval

There are things you can do to help increase your chances of qualifying for the program:

• Make sure you file your tax returns
• Respond to all IRS notices in a timely manner
• Make certain you’re current on future taxes
• Understand what you can afford
• Keep accurate documentation

Example Scenarios: What Fresh Start Looks Like in Real Life

How does the Fresh Start Program work in hypothetical scenarios? Here are two scenarios to consider:

Missed Tax Payment After a Job Loss

Chris loses his job and cannot make his tax payment of $12,000. He cannot afford to make the full payment, but he can use the Fresh Start Program once he starts making a steady income.

The program will allow Chris to make manageable monthly payments. Collections will pause as long as he stays current. 

Temporary Financial Hardship

Joan has $10,000 in taxes to pay. She’s dealing with medical bills and has no disposable income.

The Fresh Start Program will place her taxes on CNC status until she is able to resume payments again. 

Fresh Start vs. Other Ways To Handle Tax Debt

What is the most cost-effective and least risky way to handle debt? And is Fresh Start better than other methods? Here’s a comparison table to look at available options: 

Common Myths About the Fresh Start Program

• Myth: Your tax debt is wiped out with the Fresh Start Program. 
• Truth: The program doesn’t automatically wipe out what you owe. Instead, you’re offered options like installment plans, OIC and penalty relief. 

• Myth: The IRS Fresh Start Program is only for those in tax distress. 
• Truth: Many everyday tax-payers can qualify for the IRS Fresh Start Program.

• Myth: You aren’t required to file your taxes to apply. 
• Truth: You do have to be current on your tax filings to qualify for the program.

• Myth: The Fresh Start Program is only offered sometimes. 
• Truth: The program is offered every tax cycle. It isn’t a limited-time offer. 

• Myth: If you have tax debt, you can qualify.
• Truth: There are eligibility requirements to qualify for the tax program. The IRS will review income, assets, filing compliance and ability to pay to determine if you can qualify for the program.

Key Takeaways

Here are some key takeaways regarding the IRS Fresh Start Program: 

• There are several options under the program, including installment agreements, OIC, CNC and penalty abatement. 
• There are eligibility requirements to qualify. You have to be current on your filings and meet certain eligibility requirements. 
• The program will not wipe out your debt. 
• Once you’re in the program, you need to follow the rules. 

Paige Cerulli and Caitlyn Moorhead contributed to the reporting of this article.

Share This Article: