Having high amounts of tax debt can weigh you down — both financially and mentally. Fortunately, the IRS offers several options to help you rise above, including the Fresh Start program.
The program, launched in 2011, allows you to settle your back tax debts while avoiding severe penalties and consequences. Here’s what you need to know about the program.
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The Internal Revenue Service (IRS) launched the Fresh Start program in 2011 as a way to help individuals and small business owners struggling to pay their taxes.
The program:
The IRS Fresh Start program has been expanded several times over the years. The agency also recently launched the People First Initiative as a result of the COVID-19 pandemic.
The IRS Fresh Start initiative isn’t a single offering. Instead, it’s expanding on existing programs, including the Offer in Compromise program and the Installment Agreement program. Both of these programs can allow you to repay your tax debts without further consequence.
Here are the requirements for each:
There are some significant benefits to the Fresh Start program. For one, it lets you settle your tax debt without a huge upfront payment. On both offers in compromise and installment plans, you can spread the costs of your debt out over several months or even years.
Another perk is the high debts that are allowed. They mean that no matter how far in debt you’ve fallen, there is still an option to rise above and come out on top.
On the downside, the programs do come with fees, and many options require direct debit payments, which could be problematic if you’re dealing with financial hardship. For businesses, maximum debt thresholds are much lower, so business owners may not have as many options.
To apply for either an Offer in Compromise or an installment plan, you’ll need to work directly with the IRS. For offers in compromise, you’ll need the IRS Form 656 Booklet. For installment plans, you may be able to apply online.
You can also hire a tax relief company to help leverage the Fresh Start program or pursue other options for settling your tax debts. For an idea of where to start, check out our guide to the best tax relief companies.
The agency started its Fresh Start initiative to help struggling taxpayers and businesses—the program launched in 2011 and has expanded several times since.
Collection potential is how much the IRS believes you’re able to pay. The IRS uses collection potential to determine how much it will accept as an Offer in Compromise.
To determine your collection potential, the IRS will look at your assets (your car, bank accounts, house, etc.) plus your future projected income, minus reasonable living expenses.
It usually takes at least a few months for the IRS to evaluate an Offer in Compromise. You’ll typically know for installment agreements within a couple of weeks if your application has been approved.
That’s up to you. Having a professional tax relief firm handle your request may help your chances of success, but it will also come with a fee. Many tax relief companies also require minimum tax debts, so you’ll want to be sure you fall in line with these before you spend any extra cash.
Most of these tax relief companies offer free consultations. If you’re unsure whether you meet the requirements to work with one of these companies, a consultation can help figure that out.
The IRS Fresh Start initiative offers a few options if you’re dealing with tax debt. If you’re unsure it’s the right choice, consider consulting an accountant or tax professional before moving forward.
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