What happens when you can’t pay your taxes?
If you’re in a position where you can’t afford to pay your taxes, you’re not feeling great. Keep in mind you’re not alone. A lot of people find themselves in a tight spot come tax season.
You may feel like you’ve been overcharged for your taxes. And, in some cases, you may be right, allowing one to get the tax burden reduced or eliminated. However, if you legitimately owe back taxes to the IRS, you will face interest, penalties, and eventually liens and levies on your wages and property if you don’t deal with the debt.
Once you’re in a situation where you owe the IRS, it can quickly spiral out of control and start affecting other areas of your life. It can be hard to obtain certain types of credit while carrying a tax debt.
Over the years, tax experts and consumer advocates accused the IRS of failing to help those who were making a genuine effort to pay off their tax debt. In response to mounting criticism, in 2011, the IRS announced the creation of a new initiative known as the Fresh Start Program. The program was designed to give taxpayers who owed substantial back taxes the opportunity to resolve their tax debt.
This in-depth article is all about the IRS Fresh Start Program. There is a bit of a mystery behind the name and its current state, which are worth mentioning at the outset. Some people refer to the program as the Fresh Start Initiative rather than the Fresh Start Program. Others imply that the program is still functioning today as a special tool.
In actuality, the initiative ceases to exist as a standalone program. But, neither its existence today nor its name is as important as its legacy. The bottom line is that the benefits of the Fresh Start Program still exist, and many people still refer back to its name, so we’re going to do the same here.
In this comprehensive tax levy guide the following questions will be answered:
What is the IRS Fresh Start Program?
To be exact, the IRS Fresh Start Program is not really a single program. It’s a series of changes the IRS made to the tax code to help individuals with tax debt. Since its start in 2011, The IRS has implemented several programs around Fresh Start.
The goal is to make it easier for those who owe the IRS back taxes to pay it off and avoid a lien on their personal assets. In short, it’s an opportunity to start over. Some of the benefits the IRS Fresh Start Program introduced for taxpayers include:
Increasing the threshold for a lien from $5,000 to $10,000
The ability to apply to have a lien withdrawn when owed taxes amount to less than $25,000
New tools to help struggling individuals with small businesses
The entire aim is to make it easier to pay taxes without excessive fees and liens. It’s the IRS’s attempt to be less aggressive and work better with individuals that have a tax debt. Currently, the relief options impacted by the Fresh Start include:
Installment Agreement (IA)
Tax Lien Withdrawal
Offer in Compromise (OIC)
It will take the assistance of a tax professional to help you decide which option(s) make the most sense for you. The IRS will require detailed financial information that proves you qualify for one of these relief options.
Who Can Qualify for the IRS Fresh Start Program?
The IRS Fresh Start Program benefits are available to everyone. The amount of variety of options within the program makes it likely that you’ll qualify for at least one type of debt relief option. However, the complexity of the program makes it difficult to get started if you’re not working with a tax professional.
The first hurdle to overcome is dealing with your tax returns. The IRS requires you to be current with all tax returns before even being granted any of the relief options available under the Fresh Start Program. You must also meet the correct amount of withholdings for the current year. The IRS feels these qualifiers are a way to create trust before working with you.
IRS Fresh Start Initiative Qualifications
The IRS Fresh Start Initiative is not a program but rather a group of policy changes that have occurred over the years. Nailing down the qualifications for the initiative isn’t possible without first accessing each individual’s situation.
You must apply for the option you or a tax professional helping you, determines to be most appropriate for your situation. The IRS will not take any action to help you just because you qualify. Remember, the IRS charges interest on tax and penalties until your balance is paid in full. It’s critical to find out if you qualify and apply as soon as possible to avoid paying more than necessary.
How Does the Fresh Start Program Work?
The IRS Fresh Start program simplifies the process of paying back significant tax debt and relieves some of the burdens that come with owing the IRS large sums of money, such as liens, levies, wage garnishments, and penalties. There are three repayment options under the program: an extended installment agreement, tax lien withdrawals, and the offer in compromise.
Extended Installment Agreement
The most common tax debt relief option is the extended installment agreement. It’s designed for taxpayers that owe $50,000 or less. The IRS will also suspend collection actions like wage garnishments, tax liens, or tax levies. You’ll make monthly payments based on your income and the value of your assets. The goal is to make the payments affordable so you can pay them on time without a financial burden.
Who Can Qualify for IRS Installment Agreements?
Although installment agreements are the most common tax relief option, you still must meet certain criteria to qualify:
• You must be current with all filed tax returns
• You will need to disclose all assets
• You must be able to prove that you lack the adequate cash available to pay off your tax debt by providing records of your checking, savings, and brokerage accounts
• You must be able to prove that you’re unable to borrow the amount you owe in tax debt using loans or refinancing options
• You must be able to prove that you lack adequate equity in retirement accounts to pay off your debt
Tax Lien Withdrawal
If you’re under a tax lien, you’ll probably want to pursue a tax lien withdrawal. This allows you to pay off your debt using a direct debit monthly payment option. Once this is set up, you can request that the IRS remove any tax liens on your accounts. This also helps you avoid having the tax lien reported to the three consumer credit agencies.
If you set up a direct debit payment agreement, there’s a chance the IRS may withdraw the lien from public record under the following conditions:
• You are an individual, a business with income tax liabilities only, or you are out of business (for which any type of tax qualifies).
• The unpaid balance originally assessed, which includes tax, penalties, and interest, is less than $25,000. Interest and penalties that have accrued since you filed (unassessed) do not count toward the tax amount limitation. If you are above $25,000, you can pay it down to qualify.
• You agree to a direct debit installment agreement with a 60-month term or less. What this means is that the payment is directly taken each month from your bank account. If the IRS can only legally collect for, say, 30 months, then you must pay off the balance in 30 months or less.
• You are in filing and deposit compliance.
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An Offer in Compromise
The last Fresh Start Program option is the Offer in Compromise, or OIC, program. In the OIC program, you may be able to settle your debt for less than they owe. You’ll make an offer based on the value of the assets the IRS can liquidate to use to pay off your tax debt.
The IRS will take into consideration your ability to pay, your current income and expenses, and any asset equity in determining what they believe you can reasonably repay. An OIC must be negotiated with the IRS and can take many months to obtain, so you may want the help of a tax professional to guide you through the requirements and negotiate with the IRS on your behalf.
Even then, only some taxpayers may qualify and be able to pay their debt for a lesser amount, and their assets will be reduced significantly if the IRS accepts the offer.
What Is the IRS Offer in Compromise Process?
After you submit your OIC application, the IRS will look at your financial position – including income, assets, expenses, and living circumstances. After analyzing all the variables, they’ll determine your ability to pay what you owe in back taxes. OIC is also an option if you do not agree with the amount the IRS claims you owe. You can file what is called an Offer in Compromise-Doubt as to Liability (DATL) if you want to have your tax liability reconsidered.
Qualifying for an OIC also makes you eligible to have tax-adjacent costs reduced. This means you’ll be able to negotiate settlements for penalties and interest. You’ll need to use IRS Form 656 when applying for an Offer in Compromise. You will also need to fill out a Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals or a Form 433-B Collection Information Statement for Businesses. If you’re considering an offer in compromise, working with a tax professional can give you the best chances of getting your offer accepted in the quickest amount of time.
How to Apply for IRS Fresh Start Program
The Fresh Start Program itself doesn’t have an application. However, some of the resolution options impacted by the program do. Therefore, you first need to identify which strategy is best before applying. Each option has a different procedure, qualifications, and application process. Some applications can be filled out and submitted in minutes online, while others are extremely complex and can take as long as one year to get approved.
The fees for the various programs vary as well. An offer in compromise comes with a filing fee of $205, while an installment agreement fee will cost you $107 for direct debit repayment and $225 for other types of repayment methods.
As a matter of caution, you should not choose a tax relief program based only on the cost involved. The relief that costs you the least may not necessarily be the most appropriate one for you; it may prove to be more expensive than others in the long run.
Don’t choose your tax relief program based on cost. What costs more initially can end up saving you much more in the long run. Likewise, you should not apply for a tax relief program just because you’re eligible. Relief programs have plenty of disadvantages. For example, you may be required to disclose confidential financial information you’d rather keep private. Ultimately seeking the guidance of a tax professional will help you navigate your options and choose a program with maximum benefits and minimum downsides.
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What is the People’s First Initiative?
To help individuals facing Coronavirus-related challenges, the IRS put a series of measures in place to provide taxpayer relief on a variety of Fresh Start Initiative-related programs. The People’s First Initiative included reminders about available services and relief on installment agreements and other options within the Fresh Start program. Here’s an overview of the notable measures the People’s First Initiative offered when it was in place.
If you had an installment agreement, payments due between April 1 through July 15, 2020, were suspended. Interest continued to accrue, however. Taxpayers had the option to stop or continue their automatic bank debits as long as the People’s Firsts Initiative stayed active. For new installment agreements, taxpayers were able to resolve outstanding tax debt liabilities by entering into a monthly payment agreement with the IRS.
Offers in Compromise (OIC)
To help taxpayers who were in various stages of the offers in compromise process, the IRS extended the deadline to provide requested additional information to support a pending OIC. They allowed taxpayers the option of suspending all payments on accepted OICs as well, although interest continued to accrue. The IRS put emphasis on reminding people with tax debt liabilities exceeding their net worth that the OIC process was designed to resolve tax debts and provide a fresh start.
Liens and Levies
Liens and levies initiated by IRS officers were suspended. New automatic, systemic liens and levies were also suspended. However, IRS officers continued to pursue high-income non-filers.
The IRS notified the Department of State of taxpayers who were “seriously delinquent,” and those taxpayers may have found their passports suspended, or their ability to renew their passport revoked. Those taxpayers were encouraged to submit a request for an Installment Agreement or an OIC. The possibility of having your passport revoked, suspended, or being denied a new one if you have a serious tax delinquency remains.
The IRS offers specific guidance on this issue.
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Where are We Now?
Although not all of the advantages to the People’s First Initiative remain, the IRS Fresh Start Program still offers a straightforward way for taxpayers to address back taxes. The eligibility requirements for each option can be complex, and communicating with the IRS can be frustrating. If the IRS requests additional information or financial data, it can be impossible to know whether you’re providing the right documents or making the situation worse.
In most cases, it’s wise to hire a tax relief company to help you with the IRS Fresh Start Program.
An experienced tax relief company like 20/20 Tax Resolution can review your situation, advise you about your best options, and walk you through the process step by step. Here’s how a tax resolution company like 20/20 will help you:
Enroll in the Best Tax Relief Program
20/20 has a complete understanding of the Fresh Start requirements and can quickly assess which option is best for your individual situation. They can also guide you through requesting enrollment in the appropriate program.
Help You Make a Convincing Case
When the IRS requests personal information or financial statements to support your request, 20/20 Tax Resolution can make an accurate and convincing case for you. Your tax relief experts can communicate with the IRS on your behalf, which will reduce your stress levels and save you time.
Save as Much as Possible
If you request an offer in compromise, your tax resolution partner will ensure that you only pay what you’re able to afford. Ultimately, this strategy can allow you to save as much as possible on your tax debt and pay less than what you owe.
When you’re looking for a tax relief company to help you with the Fresh Start initiative, don’t limit yourself to local firms. A tax relief company in your area might be convenient to visit in person, but proximity doesn’t necessarily equal great results.
Do your homework and find one that has a strong reputation on a national level. The ease and availability of remote communication and video calls free you to work with the right company no matter where you’re located.
20/20 Tax Resolution are nationwide go-to experts when it comes to tax relief help. 20/20 Tax Resolution has helped over 32,000 businesses and individuals reach successful resolutions with their IRS and state tax liabilities.