IRS Fresh Start Program

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. There are situations where other strategies make more sense, but you better hire an Expert to determine.

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.

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.

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.

“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.