Having high amounts of tax liability can lead to serious repercussions that can weigh you down, both financially and mentally. The IRS collects back taxes from Americans by referring cases to their collection department (ACS), to a local IRS collector (Revenue Officer) and independent collection agencies. The caseload can be overwhelming, hence becoming backlogged. Therefore, the Internal Revenue Service offers several options that can help you rise above such challenges, one of them being the IRS Fresh Start Initiative.
The Fresh Start Initiative was established in 2011, the program allows taxpayers to pay and settle back tax liabilities while avoiding severe consequences and penalties. Here is what you need to know about the program and qualification requirements.
What is the Fresh Start Initiative?
The fresh start initiative was first launched by the IRS in 2011, striving to assist individual taxpayers and small business owners struggling to settle their overdue tax liability by reworking its collection policies. The program aims to make it easier for taxpayers to settle their outstanding balances, pay outstanding taxes within an extended timeframe and possibly to avoid tax liens, garnishments, and levies.
The IRS fresh start program offers a myriad of benefits for taxpayers who qualify. Firstly, the initiative has increased the threshold at which IRS tax liens are issued; now tax liens are filed for individuals who owe $25,000 or more. Second, the access to installment agreement plans has expanded, allowing taxpayers to pay their tax liabilities overtime. Individuals who owe up to $50,000 can now qualify for an installment payment plans that span for six years. Lastly, the program streamlined the Offer in Compromise settlement option and has made it easier to qualify. Qualifying taxpayers can now settle their IRS liabilities for an amount that is less than they owe.
Who qualifies for the IRS Fresh Start Program?
The IRS Fresh Start Program is not a single offering. While every tax situation differs from the others and requires a unique, specialized approach, the Fresh Start Initiative offers the following options for taxpayers to choose what best suits their circumstances.
The Installment Agreement program allows individual taxpayers who are unable to pay their tax liabilities in full to create a monthly payment plan with the IRS to pay the back taxes within an extended timeframe. While the IRS determines the amount to be paid each month, the presence of a qualified tax attorney is essential during the negotiations phase to obtain the lowest affordable monthly payment plan. Once the installment agreement is established, it is important to make the agreed monthly payments timely.
- The maximum aggregate unpaid assessed tax liability for business owners is $25,000. As for individual taxpayers, the maximum aggregate assessed balances should not exceed $50,000 for long-term plans.
- The Installment Agreement setup fee can range from $0 to $225 depending on if you apply using IRS online option or by phone with an IRS agent. If you apply online and choose direct debit pay option (payment directly from a checking or savings account) then the setup fee will be lowest $31. For Low-income taxpayers, the setup fee is $0 waived.
- All tax returns must be filed and current.
- For business owners, a direct debit installment agreement is required on balances over $10,000-$25,000. For individuals, a direct debit installment agreement is required on balances exceeding $25,000.
Offer in Compromise
If the lowest possible monthly payment under the stream lined installment agreement is not affordable and will create a severe financial hardship, you may consider finding out if you could possibly qualify for the Offer in Compromise program, with the help of a tax attorney. Based on your financial circumstances, the IRS may reassess the total amount owed.
- Open bankruptcy proceedings are NOT allowed.
- The processing fee is $205 for both business owners and individual taxpayers (individual taxpayers may apply for a fee waiver if qualify for low-income certification).
- All tax returns must be filed, current, and for self-employed individuals the required estimated quarterly tax payments for the current year must have been made.
- Taxpayers and business owners can choose Lump Sum Cash Offer option and the accepted offer amount must be paid in full within five months from the date of the acceptance. Alternatively, taxpayers can choose periodic payment term and the accepted offer amount must be paid in full in 6 to 24 months.
How to apply
Taxpayers can contact the IRS directly in order to apply for the Fresh Start Program. As for the installment agreements, you may be able to apply online. For the Offer in Compromise plan, you will need to complete the IRS Form 656 Booklet.
For further information on whether you qualify for either of the options under the IRS Fresh Start Initiative, contact our tax professionals at Coast One Tax Group to help you settle your tax liabilities.