02 Mar 2019 IRS Fresh Start Program: Everything You Need to Know
Do you have back taxes with the Internal Revenue Services (IRS)? Well then you should take advantage of the IRS Fresh Start Program. For this year, the program is the most convenient way to handle paying off your back taxes, especially when it involves a large amount.
So what is this program? The program broadens the assistance taxpayers get from the IRS Restructuring and Reform Act of 1998. The program aims to help citizens pay off their tax debts. Every taxpayer can take advantage of the IRS Fresh Start Program for the entire year of 2019. However, tax experts are recommending that taxpayers take advantage of the program because of the volatility of the national leadership. This is not exactly a law so it could be scrapped if the President chooses.
So how does the program work?
The IRS Fresh Start Program was designed to help taxpayers with outstanding tax debts qualify for an OIC or Offer in Compromise. The goal of the government agency is to lessen—or eradicate, if possible—the number of financially struggling individuals who have tax debts to the government. The program also aims to solve tax debt issues earlier than the previous times. The program also aims to limit tax liens issued by the government. The Fresh Start Program also aims to make the rules more accessible to taxpayers.
The IRS Fresh Start Program made some modifications to the IRS Tax Debt Relief laws in order to make tax relief easier to accomplish among taxpayers. A number of requirements have been removed from the program, reducing the steps in order to make things easier and more convenient for the taxpayers. This allows millions more Americans to enjoy their tax benefit.
The program is not just for individual taxpayers, they are also for small businesses. Tax debts are common among small businesses, which are struggling to pay off their taxes as the company also struggles. But with the IRS Fresh Start Program, perhaps small businesses could at least find relief in the tax department if it is still having a hard time getting its financial footing in the business world. Programs like this are really comforting to individual taxpayers and the smaller companies.
Here are the adjustments in the tax laws carried under the IRS Fresh Start Program:
- Tax liens have higher thresholds.
- Introduction of tax penalty relief.
- Installment agreements are more readily available to a greater number of people.
- The Offer in Compromise agreement is expanded.
Under the Fresh Start Program, the minimum threshold of back taxes that will merit a tax lien has been increased. Before, a taxpayer with a couple of thousands in back tax is already in danger of getting a tax lien. Under the new program, the IRS ruled that taxpayers will not get a tax lien until they have racked up at least $10,000 in tax debt.
Over the years, the IRS has not been as trigger happy with its issuance of tax liens—that is partly because the government agency doesn’t have a more comfortable budget to have more people and more systems in place for easy identification of citizens who warrant a tax lien on their property. Still, a tax debt of at least $5,000 used to be in danger of being tagged for a tax lien. But as earlier mentioned, the IRS really wants to take it easy on its constituents. This is why it has stretched its minimum tax debt threshold.
However, taxpayers should note that this discussion is limited to the tax lien, or the government’s hold over a property for failure of a taxpayer to pay off his tax debt. There are other ways for the government to collect like through a wage garnishment.
But back on the issue of a tax lien, the taxpayers would be happy to know that if they have a tax lien on their property, this could be withdrawn after some requirements are fulfilled. This means that if the taxpayer owes the IRS some $10,000 and was slapped with a tax lien, he could have the tax lien revoked even before he has paid off the government the total amount he owes. You just need to submit an Application for Withdrawal by filling out the IRS Form 12277. The IRS will then assess if there is merit to your request.
There is also a faster way to get the tax lien removed, also through the use of Form 12277. You file the form, which is also a form of concurrence to the Direct Debt Installment Agreement. This agreement allows the IRS to automatically take part of your monthly salary as amortization for your tax debt. This is a way better deal than having to sell some of your properties in order to settle your tax debt. The amount that will be directly deducted from your pay check will be agreed between the two parties—the taxpayer and the IRS.
Of course, once you sign the Direct Debit Installment Agreement, you have to abide by it. If not, your debt will go back to what it once was and a new Notice of Federal Tax Lien could be issued.
Tax Penalty Relief
One thing that is really messed up with back taxes is the penalties. There is a reason why a taxpayer is in debt, and that’s because he doesn’t have an abundance of money to pay off that debt. Just as any other debt, the back taxes come with interest and penalties. A taxpayer could be imposed with a penalty of as much as 40% of his outstanding tax debt. This provides the perfect picture of being kicked while already down.
The IRS Fresh Start Program, though, will make sure you have a lot of leeway to pay off tax debt. The main reason why the program was implemented in the first place was to give people a chance to get rid of their tax debt. Getting some sort of financial pardon is one way to ease the burden of the taxpayer. Besides, there will be no loss from the government if part or the whole penalty will be erased. Under the program, a taxpayer could enjoy some form of relief from tax penalties for various “offenses” like failing to file the tax return on time or not having filed a return at all. The program also offers relief from a taxpayer’s failure to pay the tax on time or his failure to make a required tax deposit.
This benefit is very important as you could easily save yourself from paying 40% of your tax debt in the form of tax penalty.
As mentioned multiple times, the IRS Fresh Start Program aims to make tax debt less burdensome for the taxpayer. This is why the IRS has made installment programs available for a taxpayer to pay off back taxes. An installment agreement is greatly advantageous because a tax debt could be too large to be paid in full in a one-shot deal. Some may be forced to sell properties in order to comply with delayed tax obligation. But with installment payments, the taxpayer is allowed to spread out payments for tax debt over a certain period of time. This installment period could last six years or 72 months, which allows you the barest minimum amortization.
One set of taxpayers that would greatly benefit from this are those who have inherited money or maybe those who won the lottery. What most don’t know is that those “earnings”—whether heirloom or raffle winnings, will be taxed during the next fiscal year. Many of those who received a large sum of money would spend most of those without realizing that part of it should go to the government. In most cases, these citizens have already spent the tax of that large sum of money. When the tax bill arrives, the taxpayer could no longer afford it and so he starts to owe the government. Since it’s a large sum of money, the tax will also be quite large. So it is very helpful if this large tax amount could be spread out in a few years.
Of course, you have to prove to the government that you really cannot pay the tax debt in full. This is why you have to provide the IRS with financial statements proving your incapability to pay off such amount on a one-time basis.
In order to avail yourself of the installment agreement, you have to apply via the Online Payment Agreement tool on the IRS website: IRS.gov. Or you may fill out IRS Form 9465, which is essentially the Installment Agreement form. This usually works for debts that are less than $50,000. For amount larger than that, or for installment requests of more than six years, you need to submit a Collection Information Statement. This can be achieved by filling out the IRS Form 433-A or Form 433-F.
Offer in Compromise
Another important benefit under the IRS Fresh Start Program is the expansion of the Offer in Compromise or the OIC, which essentially allows a taxpayer to haggle with the IRS to pay back less than what he actually owes the government. Essentially, this is akin to the Tax Debt Forgiveness Program wherein part of your tax debt will be forgiven by the IRS. Of course, this is dependent on your ability to pay. If the IRS can see that you really cannot pay off such amount, then a percentage of your debt will be removed.
The change in the new program lies on the requirements. So while this benefit is already available beforehand, it is not readily accessible to majority of the taxpayers. The Fresh Start Program makes this OIC easier to qualify for. The time between filing of paperwork and approval was also reduced by a great deal.
Experts suggest that in order to get the best deal with the IRS, your request should make it seem like you are offering the maximum amount of money that you are capable of producing over a certain period of time. This is also when experts say taxpayers should hire a tax professional to draw up the papers for the OIC—after all, the average taxpayer don’t really know his maximum paying capability—maximum being loosely used here. Know that the IRS will reject any OIC requests if it determines that the taxpayer could actually pay more than the offered amount or even the entire tax debt itself. Calculation of income, assets, liabilities and other financially related matters will come into play during the IRS’ assessment of the request.
The IRS website has a tool that will give you an idea whether your offer would be something the agency would be amenable to. The tool is called the Offer in Compromise Pre-Qualifier, which is available in the IRS website.
How to apply for the IRS Fresh Start Program
You don’t apply for the program in general. But you do apply based on the above-mentioned changes: tax lien, tax penalty relief, installment agreement and Offer in Compromise. So choose which among the four would best suit your need. Once you’ve chosen which tax relief is appropriate for you, you choose the right IRS form for the tax relief.
Again, hiring a tax expert or professional will come in handy. The expert could look at your financial statements and easily assess which relief would be best for you. So a tax professional could be a tax lawyer, a certified public accountant or a debt resolution agency. Aside from just drawing up the paperwork, the professional would also be able to deal with the IRS agent equally. For an average person facing off with an IRS agent, the former will be at a disadvantage.
But if you have to do this on your own, here are some basic pieces of information that you will need in order to qualify for tax relief:
- You should have filed all tax returns.
- Prepare financial statements that could prove that you don’t have the capacity to pay off your tax debt.
- You should not be in the middle of a bankruptcy proceeding.
- Make sure that estimated tax payments for the year have been carried out.
- Small business owners with employees should have made all required Federal tax deposits.