Are you struggling to stay afloat and don’t have the funds to pay your federal income tax? You could qualify for relief under the Fresh Start Initiative from the Internal Revenue Service (IRS). Whether you’re an individual or small business owner, there are additional repayment and relief options that could assist with clearing up your tax issues.
What is the IRS Fresh Start Initiative?
Formerly known as the Fresh Start Program, the Fresh Start Initiative gives you different options to get a handle on past-due tax debt. It’s not a single program to help taxpayers get relief but moreover a set of various resolution options available through the IRS for resolving back tax debt issues.
Individuals and small business owners can use these programs to break their back taxes down into manageable pieces to avoid being overwhelmed when repaying what they owe, if certain criteria are met. The Fresh Start Initiative can also help shield you from bank levies or wage garnishments.
How Does the IRS Fresh Start Initiative Work?
There are three core offerings in terms of tax resolution options under the Fresh Start Initiative – Offers in Compromise, installment agreements, penalty abatements and tax lien releases. To apply for any of these options, the IRS will require you to complete and submit certain tax forms and supporting documents to see if you qualify.
Offer in Compromise (OIC)
You could qualify for an Offer in Compromise if you’re experiencing financial hardship due to lack of income and lack of assets. An OIC is an agreement between the IRS and the taxpayer to settle unpaid tax debt for a percentage of the total outstanding balance. Only a percentage of OIC’s submitted to the IRS are actually accepted, but if you qualify this can be a great resolution strategy. The Offer in Compromise is a complicated and lengthy process, and acceptance is most readily achieved with the help of licensed tax professionals.
Installment Agreement
Below is a breakdown of installment agreement options offered by the IRS:
- Long-Term Payment Plans:
- Individuals who owe $25,000 or less could be eligible for a 60-month installment agreement if they meet certain criteria
- Individuals who owe $50,000 or less could be eligible for a 72-month installment agreement if they meet certain criteria
- Businesses that owe $25,000 or less could be eligible for a 24-month installment agreement if they owe $25,000 federal tax
- Extended-Term Payment Plan: This arrangement is determined by your income, liabilities, and expenses the IRS classifies as allowable per the national standards of living. The terms are generally negotiated for you by a tax relief firm.
You should also have filed all required returns and be current on estimated tax deposits (if self-employed) before applying for an installment agreement.
Tax Lien Release
If you owe back taxes, the IRS could file a tax lien against you. But under the Fresh Start Initiative, you can request a lien release if you’ve paid what you owe in full, or meet other requirements. For example, if you are paying your tax debt through a Direct Debit installment agreement, owe less than $25,000 in total, and are on track to pay it off in under 60 months, the IRS may release a lien.
Penalty Abatements:
The IRS can add a seemingly massive amount of additional penalties and interest to late tax debts. They typically will add a late-filing penalty, late payment penalty and then interest on top of each of these penalties. They are, however, willing to release penalties based on certain criteria such as your first time falling behind or reasonable cause for falling behind. Licensed tax professionals can advise you on how to navigate these applications with the IRS.
How Do You Qualify for the IRS Fresh Start Initiative?
To qualify for the Fresh Start Initiative, the IRS requires you to be current on your tax filings. The withholding amount on the most recent return must also be accurate to be eligible for a program under the Fresh Start Initiative.
If you’re behind on tax filings, it’s best to first reach out to a tax professional to get back on track on filings before actually beginning the negotiation process with the IRS. Doing so minimizes the risk of rejection for a repayment or relief option.
IRS Fresh Start Program Requirements
Individuals could be eligible if they agree to a direct payment installment agreement and meet the following criteria:
- Owe less than $50,000 at the time of application; if you owe less than $25,000, you could qualify for a federal tax lien removal after your third consecutive timely installment
- Current on federal tax filings
- Current on all estimated tax deposits if self-employed
- Current on all payroll tax deposits if a business tax debt
- Can pay the outstanding tax liability within 60 months, or before collection statutes expire
While on the installment agreement, the IRS mandates on-time monthly payments. It’s also vital that you refrain from adding any additional tax debt which would default your agreement.
Are you considering an OIC instead? To qualify, you must be current on all federal tax filings and estimated tax payments for the current year. If you’re a business owner with employees, you should also be current on federal tax deposits for at least 2 quarters.
If you’re a small business owner with an outstanding tax liability, you could qualify for parts of the Fresh Start Initiative if:
- Your business has an IRS tax liability under $25,000 at the time of application
- Current on federal tax filings and quarterly payments
- Can repay your outstanding tax liability within 24 months
- Haven’t been delinquent on past IRS installment plans to the IRS
How to Apply for IRS Fresh Start Program
You can apply for a program under the Fresh Start Initiative by completing various required forms, along with submitting any supporting documentation. However, choosing the correct forms, filling them out properly, sending them to the correct IRS offices, and appealing IRS decisions during the review process can grow to be complicated and tedious. Many become confused and overwhelmed.
Before deciding which tax relief program could be suitable for you, consult with a reputable tax professional for guidance. It’s ideal to consider an award-winning tax relief services firm, for additional guidance about the application process.
