The time period for filing your taxes is over. How did you do?
If you’re staring at a sky-high payment, you may be scratching your head and wracking your brain. How will you pay this bill on time?
You know that delaying it will only rack up high-interest fees and other penalties, but there’s no way you can write a check for the full lump sum.
The good news? You don’t have to go into debt to pay your liability.
The US Government recognizes that there are some instances in which you need to take a more affordable route. That’s why the IRS Fresh Start Program exists.
The IRS Fresh Start Program: Facts to Know
Let’s dive into the ins and outs of this valuable tax debt payment structure, along with ways you can apply and get started today.
What is the IRS Fresh Start Program?
This is a program that the U.S. government created to help taxpayers pay down their existing tax debt more affordable and conveniently than all at once. In this program, you’ll have six years to pay your debt in full.
The IRS initiated this program back in 2008. At the time, it had a more narrow scope with fewer exceptions. In 2012, the government expanded this program to offer more flexibility, especially around its Offers in Compromise (OIC) initiative.
How much will you pay regularly?
Your per-month payments depend on your current income, along with the combined value of your liquid assets. The goal is to have your entire liability paid in full by the end of the six years.
Why is this a smart way to go?
Let’s take a look at a few of the complications you could face if you don’t pay your taxes on time. The detriments include:
- Interest charges
- Penalty Fees
- Tax Liens
- Wage Garnishments
- Asset Seizures
As you can see, it isn’t wise to sit on a payment. This isn’t a bill you can sweep under the rug and pretend doesn’t exist. It’s far smarter to take proactive measures to help make the charges more manageable instead.
Qualifying for the Fresh Start Initiative
Any taxpayer who owes $50,000 or less can qualify for the IRS Fresh Start Program. You can begin the process at any time.
Both individual taxpayers and business owners can apply.
Think you’re out because you aren’t employed at the moment? Think again.
When the IRS designed and expanded this program, it took into account that some people may experience financial hardships and become unable to pay their taxes due to issues arising from unemployment.
As such, if you’re unemployed for more than 30 days, you may qualify to have your tax penalties waived. But, don’t try to game the system – according to Siegel Law, The Equal Employment Opportunity Commission (EEOC) has been expanding the collection of payroll data from companies with over 100 employees. So, the US Government not only knows if you’re employed or not, and how much you make, but they can cross-verify data with other government agencies as well if needed.
Alternatively, you can file an extension, requesting an additional six months to file and pay your taxes while you work money matters out on your end. When you do decide to file, you can rest assured that you won’t rack up high IRS penalties for being late.
Three Repayment Routes
Did you decide that the IRS Fresh Start Program is right for you? If so, there are three different ways you can set up your monthly repayments.
Worried that the IRS prefers one over another? Don’t be.
All three routes are valid and legal, allowing you to avoid hefty fees and penalties. They’re also satisfactory to the government and meet all repayment requirements. The road you take is a personal one that will depend on your unique financial situation.
Let’s take a look at each.
Extended Installment Agreement
This option is for people who owe no more than $50,000 to the IRS in unpaid taxes.
Under it, you’ll have six years to pay off the full amount of your liability without incurring excess charges. During this time, the IRS will cease its usual collection activities. This means you don’t have to worry about things like wage garnishments, asset seizures, or tax liens.
This option is one of the most popular and well-known routes under the IRS Fresh Start Program, and for a good reason. Not everyone will pay the same amount. Instead, to make the payments fair and reasonable, the IRS takes into account your current earnings along with the value of your liquid assets.
This way, your payments are more affordable. The IRS tries to ensure that you can still maintain your same quality of life and make your regular payments, all while paying down your tax liability. In other words, the new amounts shouldn’t cause additional financial hardship as long as your current situation stays the same.
Within the extended installment agreement, there are a few different ways you can arrange and schedule your repayments. A few of the most common repayment plans include:
- Streamlined installment agreements
- Stairstep installment agreements
- Partial-pay installment agreements
You’ll have myriad payment options with each of these agreements. In most cases, you can pay online, send a check or money order through the mail or pay over the phone with a credit card. You can also set up a direct debit schedule that takes the designated amount out of your checking account on a specific day each month, so you never miss or fall behind on a payment.
Do you owe more than $50,000 in back taxes that you can’t pay back within six years? If so, you may still be able to enter into an installment agreement. In this case, you’ll work with a tax professional to develop a proposed repayment plan. You’ll also need to complete both Form 433-F and Form 9465 through the IRS.
Your best bet is to offer a payment plan that gives the IRS your per-month income minus your necessary living expenses. Begin sending in those payments even while your offer is in the consideration period, as doing so helps show the government that you are serious about tackling your debt.
Another special consideration centers on business owners who owe no more than $25,000 in back taxes. This is an In-Business Trust Fund Express Installment Agreement.
To qualify, you’ll need to have employees who work under you. You’ll have 34 months to complete all of your repayments. If you owe between $10,000 and $25,000, the IRS requires that you pay through a direct debit repayment program.
Offer in Compromise
Another IRS Fresh Start initiative is an Offer in Compromise (OIC).
Rarer than an extended installment agreement, an OIC allows you the opportunity to propose a monthly payment amount to the IRS, rather than having the government set that charge for you.
As you may expect, this program is more challenging to get into and has more red tape around it. To qualify, you’ll need to be able to demonstrate to the IRS that it should lower your tax debt due to one of the three reasons:
- Doubt as to collectibility
- Doubt as to liability
- Effective tax administration
Though more nuanced, it may be a viable and valuable option for individual taxpayers who need more leniency in their repayment structure. To learn more about the OIC process, check out our services.
The key to an OIC approval is to make a reasonable offer to the IRS. For instance, if you owe $30,000 in taxes, you can’t request to pay $5 per month and expect an approval. Instead, apply with a figure that reflects your current financial situation in a more accurate way.
Your best bet? Work with a qualified and reputable tax professional who can handle the OIC request process for you.
When this team prepares and submits the offer on your behalf, you’ll stand a better chance of approval. As the IRS extends authorizations on an infrequent basis, any expert help you can garner is a wise move.
Tax Lien Withdrawal
The third and final repayment option under the IRS Fresh Start Program is a tax lien withdrawal.
When you go this route, you’ll work with the IRS to set up a direct debit repayment plan. Once you’re all set up, you’ll make a formal request in writing that allows the IRS to withdraw the tax lien from your accounts.
Currently, the IRS requires that you owe $10,000 to receive a tax lien. However, sometimes there are cases in which you owe less than this amount and still qualify for a lien.
An advantage of the tax lien option is that if you agree to have the lien removed, you can avoid reporting the activity to the three main credit reporting bureaus.
Choosing an Option
Unsure which of the above three options is the best for you? Don’t close your eyes and pick one. Instead, team up with a professional tax attorney who can walk you through the pros and cons of each.
Once you decide on a particular route, your tax professional can find and file the required forms to eliminate any guesswork or error on your end.
The Application Process
The IRS makes it as simple as possible to complete the application to enter into its Fresh Start Program.
To begin, first make sure that you’ve filed all of your current tax returns, as well as any back taxes.
You’ll receive an immediate denial of your request if you still have outstanding taxes to complete and file. Moreover, once you enter into the program, you aren’t exempt from filing your taxes. You’ll agree in the application that during the time you’re enrolled in one of the three repayment plans, you’ll still file each year’s taxes on time.
Finished filing all of your required returns? Great! You can move to the next step.
From here, visit the IRS website and find the Online Payment Agreement Application. Here, you can review the three repayment options and select the one that fits your situation.
If you prefer to eschew the internet and go the more traditional paper route, you can always enroll in the IRS Fresh Start Program by completing Form 9465 after your taxes.
When thinking of this option, you may also want to bring in a tax professional. Even if you use the online tool available through the IRS, the application can be time-consuming and difficult to understand.
This expert can help ensure that all information, including how much you earn and how much your assets are worth in the correct way. He or she can also make sure that you don’t disclose any information that could incriminate you in a criminal investigation or governmental audit.
Limitations on the Program
Can anyone receive this reprieve from tax penalties? Not quite. There are a few limitations in place to restrict applicants.
For instance, if you’re self-employed, you’ll need to show that your net income dropped 25% over the past year to qualify for the Fresh Start Program. Also, individual taxpayers who make more than $100,000 or those filing jointly who make a combined $200,000 or more aren’t eligible.
Finally, your total tax balance can’t exceed $50,000 at the end of the year.
After you apply, expect to wait several months before you hear back from the IRS. During this time, go ahead and begin paying your set monthly amounts to demonstrate that you’re committed and ready to start.
One of the biggest challenges that taxpayers face when entering into the IRS Fresh Start Program is that it may be difficult to keep up with all of its changes. Whether you’re paying your taxes via an installment agreement, OIC or tax lien, the government adjusts each initiative regularly.
This is where it pays to hire a tax professional. That’s our job.
Our team is well-versed in the Fresh Start initiative and all of its subsets. Contact us today to learn more and begin the application process. Financial relief is one click away.