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What Is the IRS Fresh Start Program?
By Monica White MONEY RESEARCH COLLECTIVE
The Fresh Start program exists to help taxpayers who owe the IRS more than they can reasonably pay. If you’re worried about the amount of back taxes, compounded interest and penalties you owe, read on so you can answer the all-important question: What is the IRS Fresh Start program, and can it help you?
An overview of the IRS Fresh Start program
The IRS started the Fresh Start program in 2011. The program aims to provide relief for burdened taxpayers, helping them resolve their federal tax payments within a couple of years.
How the program works
The IRS Fresh Start Initiative isn’t a program you apply for directly. Instead, it’s a group of policy changes that make it easier for you to apply and be approved for existing tax relief. The policy changes are known as common-sense changes, which recognize situations where the IRS demands more money than the taxpayer can realistically pay. Four kinds of Fresh Start tax relief plans are available, each with its own qualifications and rules.
When compounding interest and penalties continue to accrue over the years, some taxpayers are left with debts they could never pay off during their lifetime. As well as negatively affecting the taxpayer, it’s also a waste of IRS resources to keep trying to collect money the taxpayer doesn’t have.
Applying for Fresh Start IRS tax relief is a long and detailed process, as each case is unique and requires individual attention. The IRS decides every case by looking into the applicant’s financial situation to calculate the amount of money they can realistically pay.
The types of tax debt relief available through the Fresh Start program
The following types of tax relief have all had their eligibility requirements loosened by the IRS Fresh Start Initiative, making it easier for taxpayers to be approved.
Offer-in-Compromise
An Offer-in-Compromise (OIC) is an agreement between you — the taxpayer — and the IRS, allowing you to resolve your tax debt for less than the total amount you owe. OIC is the most substantial form of tax relief available, as it has the potential to significantly reduce the amount of tax you owe. In extreme cases, taxpayers may reduce their debt by 90% or more. Most people partner with the best tax relief companies to achieve these results.
Applicants must be unable to pay their debt to be eligible for an IRS Offer-in-Compromise Fresh Start. However, applicants must make an offer that genuinely reflects the maximum amount they can reasonably expect to pay.
Other requirements include the following:
- Filing all tax returns you are legally required to file
- Receiving at least one bill for tax debt
- Making all required estimated tax payments for the current year
If you don’t file everything required, the IRS will deny your application and you won’t be able to appeal the decision. Note that there’s a $205 application fee, but you can ask for a fee waiver if you meet the Low-Income Certification guidelines.
IRS Installment Agreement
If you can’t pay your tax debt within the allotted time, you can request a payment plan. With this form of relief, you can pay back your tax debt in equal monthly payments for up to 72 months.
To be eligible for an installment agreement, you must be up-to-date with your tax returns and owe $50,000 or less in combined tax, penalties and interest. There’s also a range of setup fees based on whether you choose direct debit payments and whether you apply online:
- Direct debit (online application): $31 setup fee
- Direct debit (phone, mail, or in-person application): $107 setup fee
- Another payment method (online application): $130 setup fee
- Other payment methods (phone, mail, or in-person application): $225 setup fee
These setup expenses can be waived if you fall under the Low-Income Certification Guidelines.
Taxpayers use payment plans when they intend to pay the full amount of tax owed. If you think you can’t pay the full amount, you may need to apply for an Offer-in-Compromise instead. When you enter a payment agreement with the IRS, you’ll continue to pay interest. Certain penalties can also still be applied, though an installment agreement will typically help lower the penalties you accrue.
Penalty Abatement
The IRS charges penalties for various reasons, including failing to file or pay your tax. However, removing or reducing a penalty for a reasonable cause is possible. Common causes that the IRS accepts include:
- Fires and natural disasters
- Inability to get records
- Death or serious illness in the taxpayer or immediate family
- System issues that caused delays
In most cases, you must prove that the circumstances leading up to your penalty were entirely out of your control. Then, you can request a penalty abatement over the phone or in person, and no fees are involved.
Currently Not Collectible (CNC)
When you owe the IRS tax debt, they’ll take several actions to collect money from you — bank levies, federal tax liens and seizure of income or assets, to name a few. It’s possible to temporarily stop these actions by requesting to delay collection. If your request is approved, the IRS will report that your account is not collectible.
While under this status, you won’t receive collection requests in the mail or have any of your property seized. You will, however, still accrue the same amount of interest and penalties for the duration of the delay.
It’s hard to draw a definite line between what is considered tax relief and what isn’t. It may be more accurate to describe CNC status as a tool to help ease your burden during the application process for tax relief.
The eligibility requirements
There are a few elements to qualifying for the IRS Fresh Start program. Firstly, the more significant the relief is, the stricter the requirements are. To apply for any form of IRS Fresh Start tax relief, you must prove that you don’t have the financial means to pay your tax balance or that paying would cause you significant financial hardship.
The specific details of each applicant’s financial situation determine who qualifies for IRS Fresh Start programs and which type of relief they should get. For example, an installment agreement is a standard solution if you don’t have funds available to pay your debt in a lump sum but have a stable job. On the other hand, if you don’t have funds available for a lump sum payment, you’re currently unemployed, and you don’t own any assets, an Offer-in-Compromise is a more appropriate option.
Other IRS Fresh Start program qualifications typically include:
- Filing all of your tax returns accurately
- Making sure your estimated tax payments are current
- Providing all of the documents and paperwork requested
How to apply for the IRS Fresh Start program
An application for the tax relief Fresh Start program typically begins with a form. Use the correct form applicable to the type of relief you’re applying:
- Offer-in-Compromise: Form 656 (booklet with instructions included)
- Installment agreement: Form 9465 or apply online (instructions available here)
- Penalty abatement: Form 843 (instructions available here)
- Currently not collectible status: Form 433-F
For penalty abatement, you can also submit some requests over the phone. If your request can’t be approved over the phone, the IRS will ask you to fill out Form 843. To request CNC status, call the IRS at 800-829-1040. During the call, the IRS representative may ask you to fill out a Collection Information Statement (Form 433-F).
Read the corresponding forms to find out how to apply for IRS Fresh Start program relief. They typically include information about how to proceed with your application and what kinds of supporting documentation and evidence you need to collect. The best way to ensure your application is complete and compelling is to work with a tax professional.
Tips for getting your Fresh Start request approved
Completing an IRS Fresh Start program application can be a complex process. It’s worth taking the time to ensure your application has everything you need before sending it off. Here are some tips to keep in mind.
Prove that you qualify with adequate evidence of hardship
The purpose of your application is to prove to the IRS that you don’t have the funds to pay or believe that paying won’t leave you with enough money to live.
Since applications are evaluated based on your individual situation, providing evidence of your financial condition is of utmost importance. This involves submitting personal information, but it’s the only way to show the IRS that you meet their requirements. If you’re unsure whether a particular piece of information is necessary, it’s better to include it just in case. Missing information can cause your application to be rejected, but extra information will go unused if they don’t need it.
File all missing tax returns
To evaluate your eligibility, the IRS must be aware of all relevant financial information connected to you. Therefore, you must know how to file back taxes and file any missing tax returns to begin an application. If you try to apply without completing this step, the IRS will deny your application, and you won’t be able to appeal the decision.
Make sure that your current tax filings and withholdings are correct
When you apply for help settling back taxes, ensure that your current tax filings are correct. Ultimately, you want to present yourself as a diligent taxpayer who will avoid falling into debt again. Your current tax estimates for the year are also important because some applications will evaluate your future collection potential. Refer to the 2023 tax brackets when you update your current taxes.
Seek the help of a professional tax relief company
It’s the IRS’s job to collect as much as possible of the tax they’re owed, so negotiating with them can be difficult for the average taxpayer. Working with a tax professional who understands the IRS Fresh Start guidelines and qualifications is often more effective and efficient.
A professional tax relief company understands your rights, so they know when IRS agents offer an acceptable compromise and when they ask for too much. It’s also helpful to have someone knowledgeable to help you strengthen your initial application and ensure nothing is missing.
Are there any fees involved in the IRS Fresh Start program?
There can be various setup and application fees associated with IRS Fresh Start tax relief. Offer-in-Compromise requires a $205 application fee, and setting up an installment agreement also involves costs.
It’s possible to have your fees waived if you qualify for the Low-Income Certification. You can find out if you are eligible for this by checking your adjusted gross income against the chart on Form 656, Section 1. For example, for an individual living in one of the 48 contiguous states or D.C., the adjusted gross income must be $32,200 or less.
Get caught up with your tax payments
Staying up-to-date with your tax payments is a worthwhile goal. The time and effort it takes to file tax returns and gather documents is ultimately less work than dealing with tax debt and relief. You’ll also gain peace of mind from knowing everything is in order.
If you struggle with your taxes, try using tax software to make the process simpler and more efficient so that you can spend your time on other things. From robust solutions for investors to free apps for individuals, choosing the best tax software for you can help make taxes more approachable.
Monica White is a journalist with a lifelong interest in technology, from PC hardware to software and programming. While she loves tech, she has written about countless different topics over the years and enjoyed learning new things in the process. She first started writing over ten years ago and has since written for several industry-leading publications.