In 2011, the IRS acknowledged the challenging times people were facing in the depressed economic climate by rolling out the Fresh Start Initiative (FSI). The Economic downturn we faced in 2015 suggests a revitalization of the is program may be on the horizon. The initiative provides a ray of hope to financially distressed and struggling taxpayers, giving them a chance to keep up with their tax payments and avoid tax liens. The program helps qualified taxpayers by exempting them from penalties on unpaid dues and accrued interest. Since inception, the IRS Fresh Start Initiative has helped thousands of struggling taxpayers deal with taxes and penalties. Here are some of the noteworthy changes made to the IRS Fresh Start Initiative since its introduction.
Offer in Compromise (OIC)
Taxpayers struggling to pay the full federal tax bill can apply for an Offer in Compromise (OIC) to reduce their tax burden. An Offer in Compromise allows eligible taxpayers to settle their tax debts at less than the full amount they owe. Fresh Start, in time, has expanded and streamlined the OIC program. The IRS however, doesn’t accept the offer if it believes that the taxpayer can pay the due amount in full or through a payment agreement. The changes made to OIC in the IRS Fresh Start Initiative 2015 include the introduction of an OIC Pre-Qualifier tool to establish eligibility by taking the following taxpayer attributes into account:
- Ability to pay
- Income
- Expense
- Equity
Installment Agreement
Taxpayers who are not eligible for OIC can seek professional help to negotiate manageable monthly payments in an IRS installment agreement. Traditionally, taxpayers owing more than $25,000 in tax debts were subjected to an invasive income examination process to determine their monthly payments. The Fresh Start Initiative of 2015 has raised the limit to $50,000, meaning the taxpayers with debt up to $50,000 can now pay their tax debt through monthly direct debit payments for up to six years. A taxpayer with debt of more than $50,000 can also apply for the installment agreement but have to first provide the IRS with a financial statement. For more information visit irs.gov
Tax Liens
A tax lien is government’s legal claim against the taxpayer’s property, when they have failed to pay their tax debt. Liens enable the government to claim all property including real estate, personal property, and various financial assets. Liens against property make it difficult for taxpayers to raise credit and the property often ends up in an auction. The situation often arises when taxpayers ignore or refuse to pay tax debts on time. If a taxpayer defaults on the Direct Debit Installation Agreement, the IRS has the authority to send a Notice of Federal Tax Lien asserting its legal right to their property. The revised tax lien provisions allow struggling taxpayers to get rid of federal tax lien in any of the following four ways:
- Paying tax debt in full
- Discharge of property
- Subordination
- Withdrawal
You can read more about these options at irs.gov
The Bottom Line
The IRS Fresh Start Initiative is designed to help struggling taxpayers do away with their back taxes and penalties in a hassle-free manner. Since its introduction in 2011, the program has undergone multiple changes, making it easier for taxpayers to settle disputes quickly and avoid inconveniences. Taxpayers can seek professional help to learn their eligibility to the program and also negotiate a fair OIC agreement. Feel free to contact us at (972) 426-2553 for a free consultation with Nick.
