The federal government understands that debt is a tremendous problem for many Americans, holding hard-working people back from their dreams of homeownership, a college education, or a better life for themselves and their children.
Americans collectively owe more than $600 billion per year in back taxes, alone, according to an AP News report. That’s not counting student loan debt, personal loans, car loans, or high-interest credit card debt.
In 2011, the federal government introduced the IRS Fresh Start initiative to help Americans with more than $10,000 in federal taxes avoid IRS tax liens and pay off their debt without undue financial hardship.
The IRS Fresh Start program is not the same as the Fresh Start Initiative for federal student loan forgiveness. We described how the Department of Education’s Fresh Start can help people with student loans here.
As with any financial situation, it’s typically best to seek the help of professionals if you’re dealing with any kind of debt you can’t manage. If you have a tax liability you can’t afford to pay, you want a tax professional, like those at Alleviate Tax, on your side.
With a quick phone call, we can find out if you qualify for any of the programs available under IRS Fresh Start.
Fresh Start – IRS Initiative General Qualifications
The Fresh Start program is designed to help taxpayers. But the IRS expects those who apply for any tax relief to meet certain qualifications.
In general, before the IRS will accept any agreements or settlements, you must be up to date on your taxes, including filing all your taxes for the past three years. To qualify for Fresh Start, specifically, your total tax debt, including interest and penalties, must be $50,000 or less. Anyone who has been accused of, or participated in, tax fraud or tax evasion will not qualify for Fresh Start or other tax relief programs.
Additionally, the IRS typically won’t consider anyone who is in an open bankruptcy proceeding to qualify for an offer-in-compromise, payment plan, or installment agreement.
If you are an independent contractor, 1099 gig worker, or a business owner, you must be current on all quarterly estimated tax payments for the current year.
Components of the IRS Fresh Start Program
The Fresh Start program has several components designed to help taxpayers avoid tax liens and levies and potentially settle their tax debt for less than they owe. We’ll explore the different programs and how to qualify for each.
Offer in Compromise
When most people hear advertisements for the IRS Fresh Start program, they immediately think of an offer-in-compromise. This tax relief tactic typically leads to the biggest savings in the overall amount you owe. But not everyone qualifies for this level of savings. The IRS only accepts roughly 36%, or just over one-third, of the OICs it receives.
How to Qualify
The IRS provides three options when you file an offer-in-compromise:
- Doubt as to collectability
- Effective tax administration
- Doubt as to liability
To qualify for the first two, you must file Form 656-B. To qualify for an OIC based on doubt as to liability, file Form 656-L, according to the IRS website. You can’t file more than one form at a time.
To qualify for an OIC based on doubt as to collectability, your income, savings, investments, and other assets, including equity in personal property, must be less than what the IRS expects it would be able to collect before the statute of limitations on tax debt runs out for you.
Penalty Abatement
Penalty abatement is another aspect of the Fresh Start program. The IRS offered automatic penalty abatement in 2021 and 2022 for taxpayers who didn’t receive any reminder notices from the IRS. But if you owe tax debt prior to the 2020 tax year, or for 2022 or 2023 taxes, you can still request a first-time penalty abatement.
How to Qualify
You can qualify for First Time Abate if you haven’t received any penalties on the same type of tax return for three years prior. If you’ve had a penalty relieved for another reason besides First Time Penalty Abate, you may still qualify.
You can apply for for the IRS First Time Abate program with a phone call or by filing form Form 843, Claim for Refund and Request for Abatement.
Installment Agreement
You may qualify for an installment agreement with the IRS if you are up to date on all tax filings and not in an open bankruptcy proceeding. Types of installment agreements include:
- Short term payment plan
- Installment agreement
- Streamlined installment agreement
- Guaranteed installment agreement
- Partial pay installment agreement
How to Qualify
If you can pay off your tax debt within 180 days, you can apply for a short-term payment plan. There is no fee for this program, but interest and penalties will continue to accrue until you pay the debt in full. You can make one lump-sum payment by the due date or you can make partial payments at any time.
If you can’t pay off your debt within 180 days, you can apply for a guaranteed installment agreement if you don’t owe more than $10,000 as an individual. To qualify, you and your spouse must have filed all income tax returns and paid all past due income taxes in the past five years. You must not have an installment agreement in effect. You must agree to pay the full amount within three years or before the Collection Statute Expiration Date (CSED).
To qualify for a streamlined installment agreement, you must owe less than $25,000 in tax debt. If you owe more than $25,000 but less than $50,000, you may qualify if you can make a payment to bring your total debt down to $25,000 before applying for the installment plan.
You must be able to pay off your debt within 72 months by making monthly payments.
FAQs
Does IRS have a Fresh Start program?
The IRS has a Fresh Start program, implemented in 2011, which provides taxpayers with payment plans and other opportunities to settle their tax debt for less than they owe.
How much interest and penalties does IRS charge on installment plans?
When you establish an installment agreement with the IRS, interest and penalties will continue accruing until your tax debt is paid in full. The IRS charges a penalty of 0.5% per month, up to 25% of the unpaid taxes. The interest rate for unpaid taxes, which is adjusted quarterly, is 4% per year, compounded daily, as of May 2024.
How to pay IRS 2024?
The IRS offers many ways to pay your late tax debt. You can pay online through the Electronic Federal Tax Payment System or through the IRS2GO app. You can use IRS Direct Pay to pay personal income taxes. You may also set up a payroll deduction installment agreement to have your installment agreement payments deducted directly from your paycheck. Alternatively, you can mail a check or money order made out to the U.S. Treasury.
