How Taxpayers Benefit from the IRS’s Fresh Start Initiative

IRS Fresh Start Initiative: A Second Chance For Those Who Need It

( – The IRS’s Fresh Start Initiative creates options for taxpayers who owe less than $50,000 in back taxes to pay their debt over a longer period without entering a collection program and sometimes getting penalties waived.

The program, which was created in 2011 and modified to help more taxpayers in 2012, offers taxpayers three methods of repayment that are designed to fit within the taxpayer’s income and assets without driving them into further debt.

Who qualifies for the Fresh Start Initiative?

The requirements for a taxpayer to apply for help under the Fresh Start Initiative are:

  • The taxpayer must have less than $50,000 in IRS debt and the ability to repay most of the debt within five years.
  • Not having fallen behind on IRS debt previously.
  • Being current with tax filings and willing to stay current through the payment period.
  • Agreeing to a direct payment structure through an installment agreement or to a reduced-debt agreement known as an Offer in Compromise (OIC) agreement.

Small businesses also can apply for the Fresh Start Initiative but must be current with their employment tax payments.

What are the three payment options through the Fresh Start Initiative?

The IRS offers three payment options through the Fresh Start Initiative:

  • Installment Agreement: The Installment Agreement is the most popular form of payment. The IRS will assess the taxpayer’s income, debts including student loans and state or local taxes owed, and assets to determine a fixed monthly payment that can be spread out over up to five or six years. The preferred method is for the taxpayer to agree to have the monthly payment withdrawn from their bank account, though there are options for the taxpayer to send in a monthly payment. Low-income taxpayers can apply to have some fees waived in this process.
  • Offer in Compromise: An offer in compromise is a way for a taxpayer who would not be able to pay their full debt to pay a reduced amount over a shorter time period. An OIC is accepted only when the IRS realizes it will not be able to collect the full amount of taxes owed through an installment agreement. Under an OIC, the taxpayer must make a lump sum payment (20 percent) of their offer and pay in five installments or less or agree to monthly payments for 24 months or fewer with the first installment sent with the application.
  • Lump Sum Payment: If the taxpayer can pay the entire back taxes due, the IRS might agree to waive penalties under certain circumstances and will withdraw any federal tax lien.

Other Features of the Fresh Start Initiative

Prior to the Fresh Start Initiative, the IRS would automatically file a federal tax lien when a taxpayer owed more than $5,000 in debt. That number was initially raised to $10,000 in 2011 and boosted to $25,000 in 2012. This prevents a taxpayer from having that blemish on their credit report while they are working with the IRS to pay off their tax debt.

The initiative also made it easier for small businesses to qualify for installment payments as long as they remained current with employment tax payments.

Taxpayers may apply for the installment agreement or OIC on their own through the IRS website, but the process can be complicated. Taxpayers would be advised to work through a qualified tax professional to apply for the Fresh Start Initiative to ensure their application is completed correctly and be more likely to be accepted by the IRS. A tax professional will be better able to determine a taxpayer’s ability to pay their debt, especially under an OIC.

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