Logan Allec, CPA is the founder, owner and president of tax relief services company Choice Tax Relief, which serves clients nationwide.
Every day, my staff and I interact with business owners burdened with tax debt who want to know more about the IRS Fresh Start program they heard about on the radio. We routinely field questions like these:
• “I heard that the IRS Fresh Start program is going to expire at the end of the year. Is that true?”
• “Everybody gets a one-time forgiveness from the IRS through the Fresh Start program, right? I’d like to take advantage of that now.”
• “How much will it cost to put me in the Fresh Start program?”
Unfortunately, every one of these questions above is based on some kind of misinformation the asker has received.
For one, the Fresh Start program doesn’t have an expiration date. For another, it does not guarantee any forgiveness of tax debt. And finally, there is no single, one-size-fits-all program that taxpayers can be placed into for some standard fee.
So in light of all this misinformation, I’ve taken it upon myself to set the record straight about what the IRS Fresh Start program actually does for American taxpayers.
3 Things The Fresh Start Program Does For Taxpayers
There is a kernel of truth in those radio ads about the Fresh Start program: It is, in fact, a program created by the IRS to help Americans deal with their tax debt.
Now, although the name is certainly catchy, it may be a bit misleading, because the Fresh Start program isn’t so much one particular “program” that taxpayers can participate in. Rather, it is a set of changes the IRS made over a decade ago to its collections procedures that make more taxpayers eligible for existing tax relief programs.
Here are three things the Fresh Start program did and continues to do for taxpayers in trouble.
1. Expanded Taxpayer Access To Installment Agreements
The IRS offers a “streamlined” installment agreement that lets taxpayers set up a multi-year payment plan to pay down their tax debt without much scrutiny from the IRS of the taxpayer’s financial situation and without the IRS filing a notice of federal tax lien against them.
Under the old rules, only those owing $25,000 or less could qualify. The Fresh Start program doubled that limit to $50,000, allowing more taxpayers to easily enter a payment plan with the IRS.
2. Increased Taxpayer Eligibility For The Offer In Compromise Program
An offer in compromise is an agreement with the IRS to settle your tax debt for less than you owe.
“Doubt as to collectibility” is the offer in compromise most often submitted to and accepted by the IRS. The taxpayer is essentially making the case that the amount they are offering to the IRS is the most the IRS could reasonably expect to collect from them anyway.
The calculation of the minimum doubt as to collectibility offer amount the IRS will consider is complicated. Part of the formula involves calculating your monthly disposable income after paying necessary living expenses, and then multiplying that figure by a “future income multiplier.”
Before the Fresh Start program, taxpayers would have to multiply their monthly disposable income by either 48 or 60 months (depending on how quickly they could pay their offer amount) and pay at least this much in their offer in compromise.
The Fresh Start program reduced these multipliers to 12 or 24 months, drastically reducing minimum offer amounts and making more taxpayers eligible for an offer in compromise as a way of settling their tax debt.
3. Eased Notice Of Federal Tax Lien Enforcement Procedures
One tool the IRS uses is the notice of federal tax lien—a document that the IRS can file in public records to alert creditors and would-be creditors that you owe back taxes.
Although tax liens no longer affect your credit, they can have other negative effects. For example, a lender may be more hesitant to lend you money if they discover that you have an outstanding debt to the IRS.
Before the Fresh Start program, the IRS could file a notice of federal tax lien against you if you owed at least $5,000; the Fresh Start program doubled that threshold to $10,000.
It also makes it easier for taxpayers with a balance of $25,000 or less to get the IRS to withdraw a notice of federal tax lien if the taxpayer enters into a direct debit installment agreement and makes three consecutive payments under the agreement.
Understanding Whether The Program Is Right For You
If you are an individual or business owner who owes back tax debt to the IRS that you are unable to pay, chances are there is some aspect of the IRS Fresh Start program that can benefit you.
Review the list of questions below. If you can answer “yes” to any of them, you can likely benefit from the Fresh Start program:
1. Do you owe $50,000 or less to the IRS and want to easily set up a monthly payment plan?
2. Do you owe $25,000 or less to the IRS and want to have their notice of federal tax lien withdrawn to make it easier for you to borrow money or to retain all of your net equity upon the sale of your home?
3. Do you owe any amount to the IRS, are struggling financially, and believe you may qualify to settle your tax debt for less than the full amount owed?
The Fresh Start program isn’t a magic “get out of taxes free” card that wipes away everybody’s tax debt, nor is it a one-size-fits-all program you can “sign up” for. But it did make meaningful changes that expanded taxpayer options, lowered barriers to IRS relief programs and continues to give many people a real chance to get back on track with the IRS.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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