Fresh Start Program

What is the Fresh Start Initiative?

Here is a statement about the Fresh Start Program direct from the IRS website: 

“The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.”

Some of the highlights of the Fresh Start program are:

  1. It created the Stream-Lined Installment Agreement “SLIA”. This allows taxpayers to set up a payment plan with less paperwork.
  2. It increased the maximum amount for a streamlined installment agreement from $25,000 to $50,000. It also allows you to pay down your debt below $50,000 to qualify for a SLIA. Keep in mind this is with ‘limited’ financial information. Although interest continues to accrue, this was intended to allow more people into the plan by minimizing the paperwork necessary to qualify.
  3. It increased the maximum term for SLIA from 60 months to 72 months.
  4. It expanded and streamlined the Offer in Compromise program to include a broader range of eligibility.
  5. It allows for Penalty Abatement in certain cases, such as unemployed taxpayers.
  6. Increased to $10,000, the amount a taxpayer owes before the IRS files a Notice of Federal Tax Lien. It is important to note that is some cases the IRS may remove a tax lien. The form to do this can be found here: https://www.irs.gov/pub/irs-pdf/f12277.pdf?_ga=1.68670033.1736408826.1480743540

Five Steps to your Tax Freedom

Some of the highlights of the Fresh Start program are:

  1. It created the Stream-Lined Installment Agreement “SLIA”. This allows taxpayers to set up a payment plan with less paperwork.
  2. It increased the maximum amount for a streamlined installment agreement from $25,000 to $50,000. It also allows you to pay down your debt below $50,000 to qualify for the SLIA. Keep in mind this is with ‘limited’ financial information. Although interest continues to accrue, this was intended to allow more people into the plan by minimizing the paperwork necessary to qualify.
  3. If your debt is more than $50,000 you can still get a payment plan but it requires you complete an IRS 433-A or 433-F financial form which can be found here: https://www.irs.gov/pub/irs-pdf/f433a.pdf
  4. It increased the maximum term for SLIA from 60 months to 72 months.
  5. It expanded and streamlined the Offer in Compromise program to include a broader range of eligibility.
  6. It allows for Penalty Abatement in certain cases, such as unemployed taxpayers.
  7. Increased to $10,000 in most cases, the amount a taxpayer owes before the IRS files a Notice of Federal Tax Lien.It is important to note that is some cases if you are in a Direct Debit Installment Agreement, the IRS may withdraw a tax lien. Requiring the taxpayer file form 12277 which found here: https://www.irs.gov/pub/irs-pdf/f12277.pdf?_ga=1.68670033.1736408826.1480743540
Is Fresh Start my best option?

Not necessarily. As shown above, the Fresh Start program makes it easier to find a workable arrangement with the IRS, but it only covers a few options. A payment plan or an Offer in Compromise may not be your best option depending on many factors.

I see a lot of ads for the "Fresh Start Program." Why?

It sounds good. Who wouldn’t want a Fresh Start? Unfortunately, it is often used as a bait and switch. You can’t put someone into the Fresh Start Program; rather you put them into a program under the guidelines of the Fresh Start Initiative. Buzzwords like ‘pennies on the dollar’ ‘get a fresh start’ catches people’s attention. 

How does the Fresh Start Program differ from an Offer in Compromise?

As you can see from above, the Fresh Start Program amended IRS policies making it easier for the taxpayer. Included was to make getting an Offer in Compromise easier. 

How did Fresh Start amend the Offer in Compromise Program?

The Fresh Start program amended the Offer in Compromise program by adjusting the financial analysis used to determine which taxpayers qualify, and broadening allowable guidelines to include more taxpayers.

For example; the IRS revised the calculation of the taxpayer’s disposable income by allowing student loan repayment and delinquent state/local tax payments as an expense. It also increased the “allowable living expense” category and amounts.

Overview and Insight - Fresh Start Initiative

“This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years,” said IRS Commissioner, Doug Shulman. “It is part of our multiyear effort to help taxpayers who are struggling to make ends meet.” An acknowledgment by the IRS that taxpayers who are struggling need relief, and perhaps the IRS’s collection tactics in the past were too aggressive.

An Offer in Compromise is an agreement where the IRS settles the taxpayer’s tax liabilities for less than the full amount. The IRS looks at income and allowable expenses and comes up with ‘disposable income.’ This is how they determine how much you can pay monthly. An Offer in Compromise is not accepted if they believe the liability can be paid in full as a lump sum, or through a payment agreement. In fact, an Offer in Compromise could be denied if IRS thinks you have the potential to at least pay something each month.

Under the new guidelines, when the IRS calculates a reasonable collection potential, it looks at one year of income. Previously they looked at four years income which could cause income averaging resulting in an Offer in Compromise denial. This applies to Offer in Compromise settlements where the settlement amount will be paid in six months or less. For offers paid in seven to twenty-four months, two years of income is used. The old rule, in this case, was to use five years, and again this allowed for more denials as OIC is usually necessary because of present circumstance, not what happened five years ago. 

Other changes include what is referred to as a ‘dissipated asset.’ This is an asset you sold, or money you spent, within the previous three years of the offer. Fresh Start narrowed parameters and clarification of when a dissipated asset will be included in the decision to approve or deny an Offer in Compromise. Also, equity in income-producing assets will not be included in the calculation of reasonable collection potential for on-going businesses. That means they cannot require you to sell assets you need for your livelihood.

Lastly, the IRS expanded allowable living expense standards (which are used to determine a taxpayer’s ability to pay). Allowable living expense now includes items such as credit card payments, bank fees, payments for student loans guaranteed by the Federal government, and payments for delinquent state and local taxes.

Copyright © 2018 Tax Relief Advisers - Terms of use - Privacy Policy