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

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Many Americans have found themselves in dire straights of financial hardship. Paying bills is already difficult before you factor in your taxes. No matter your financial situation or the state of your tax returns, it is always good to know where you can get a little bit of help.

What Is the IRS Fresh Start Program?

In 2011, the IRS announced the Fresh Start program. The IRS Fresh Start tax program is a set of initiatives designed to help taxpayers, including individuals and small businesses, who are having problems and cannot pay their taxes.

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. Specifically, the program is designed for taxpayers who would face a worse financial situation after incurring significant tax penalties. 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 up.

IRS Fresh Start Tax Relief Program Eligibility

The IRS Fresh Start program has no income requirements. However, you must meet several other eligibility requirements. To qualify:

• You must have filed all of your required tax returns for the past three years.
• You cannot owe more than $50,000 in taxes or have been involved in any tax evasion or fraud.
• You must have made all of your required estimated tax payments in the previous year.

In addition to these eligibility requirements, certain Fresh Start initiatives have additional requirements. For example, to qualify for an offer in compromise, you can’t be involved in an open bankruptcy proceeding, and must have a valid extension for a current year’s tax return.

To determine if you are eligible you may have to visit the IRS website, call or email an IRS representative or visit your local tax office. 

IRS Fresh Start Pros and Cons

4 Main Fresh Start Initiatives and Payment Options

Essentially the IRS Fresh Start Program can be broken down into four main initiatives. The payment options include

1. Offer in Compromise
2. Installment agreement
3. Penalty abatement
4. Currently Not Collectible status

1. Offer In Compromise 

Offer in Compromise, or 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 takeaways from OICs:

• 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. 

2. Installment Agreement 

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 would continue to the IRS until the debt was paid in full. You should note that once the debt dips beneath $25,000, previously existing tax liens and levies will be removed. 

3. 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. 

4. Currently Not Collectible Status

Unlike the other three payment options, this option is not a method but a status. This status allows payments to be put on hold during times of severe financial hardship. Features of the Currently Not Collectible status include:

• 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.

How to Apply for the IRS Fresh Start Program

To apply for the IRS Fresh Start program, you will need to fill out an application for the initiative of your choice. The IRS website includes links to the applications for each initiative. Since requirements for each initiative vary, be sure to pay close attention to the eligibility requirements and the documents requested for each application.

For example, if you apply for a payment plan, you will need to create an ID.me account and will need photo identification. For a direct debit plan, you will need your bank routing and account numbers. You may also need to provide the balance due shown on your recent tax return.

While you can apply for the program yourself, the applications can be confusing. If you’re uncertain of how to correctly complete the applications, you can consult a tax resolution service or tax professional to help guide you through the process.

Once your application is approved, you will need to follow the plan specifications precisely. If you miss payments or violate the plan terms, you could be dismissed from the program. In addition to paying down your taxes owed, you will also be responsible for filing all future returns and paying those taxes.

IRS Fresh Start Program vs. Other Tax Relief Options

The IRS Fresh Start program features several initiatives, so you can choose the option that best works for your situations. If you’re approved for the program, the IRS will tailor a solution to your specific tax debt, and these solutions can help you pay back your owed taxes without incurring hefty fees and penalties that slow or make repayment impossible.

Credit Cards

Other tax relief options exist, too. You could use a credit card to pay off your taxes, avoiding fees and penalties. However, you could face significant interest while you work to pay off your credit card balance. A credit card with an introductory 0% interest period would give you more time to pay off the balance, but these cards can be difficult to quality for.

Personal Loan

Some taxpayers choose to take out a personal loan, since it can be easier to qualify for a personal loan than for a 0% APR credit card. Keep in mind that personal loans can still have high interest rates, especially if you don’t have excellent credit.

Tax Relief Companies

Tax relief companies are another potential solution. These companies work with the IRS to reduce or eliminate your debt, and they can help arrange installment payment plans to make paying back your debt more manageable. Most companies charge an initial fee to investigate your debt and identify potential solutions, and they may also require you to have a minimum amount of tax debt.

While there are many potential ways to pay down your taxes, you will need to carefully consider your options and decide which route is right for your financial situation.

Final Take To GO 

If the idea of approaching the IRS by yourself is overwhelming, many tax relief services can help you through these taxing times. Here are some top companies to consider:

• Tax Relief Advocates
• Anthem Tax Services
• Community Tax
• Fortress Tax Relief
• Larson Tax Relief
• Precision Tax Relief
• Tax Defense Network

Paige Cerulli contributed to the reporting of this article.

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