What is the IRS Fresh Start Program?

The Fresh Start Program isn’t the breakthrough in Back-Tax Relief that those annoying commercials make it out to be. It just made a few things better.

The IRS introduced the Fresh Start Initiative in 2011 to make it easier for people to resolve and pay a back-tax debt. While the name “Fresh Start Initiative” may have been a little bit misleading to some of us, overall, it’s had a very positive impact on INDIVIDUAL taxpayers. Offer in Compromise acceptance rates have risen, as a result, and Installment Agreements are less painful to obtain.

Business Tax Too? Not so much. The IRS just isn’t as interested in giving businesses with tax debt, especially payroll tax liabilities, a break.

The IRS has continued to test and expand the Fresh Start Program. This year the Service has tested expansion of some qualifying criteria for Streamlined Installment Agreements and has extended the test through 09/30/2018. It will be implemented by the Automated Collection System (ACS), but not by Revenue Officers. Test Criteria in italics below.

As with all IRS back-tax resolutions, current tax compliance is still a must. All required tax returns must be filed, and current taxes paid to qualify for IRS solutions.

Okay, so what is the Fresh Start Program? Here’s what you need to know.

A More Effective Offer in Compromise

The Fresh Start Initiative made the Offer in Compromise available to more taxpayers by loosening the financial restrictions that were required to qualify for it.

Expanded OIC

The Offer in Compromise prior to the Fresh Start Initiative used 48 or 60 months to calculate a taxpayer’s monthly payment portion of their Reasonable Collection Potential (RCP). That means the IRS used to multiply your ability to pay monthly by 48 or 60 months. So, if you could make a payment of $100/month, $4,800 or $6,000 would be added to your acceptable Offer amount, your RCP.

The Fresh Start Initiative dropped that multiplier to 12 or 24 months. That means instead of adding $4,800 or $6,000 to your RCP, $1,200 or $2,400 would be added. That’s at least a 50% reduction.

Streamlined OIC

The IRS has also decreased the strict scrutiny of many OICs, especially those submitted to settle debts of $50,000 or less.

Some financial allowances have also changed. For example, the IRS will now include state tax debt payments and student loan payments as allowable monthly expenses when calculating a taxpayer’s RCP or total Offer amount. And, dissipated assets are scrutinized less. A dissipated asset is one that has been sold, transferred or applied to a lower priority debt and is no longer available to pay the taxes. Simply put, it’s money in some form that could have been used to pay the tax, but wasn’t.

In-Business Offer in Compromise

It just doesn’t work on business taxes most of the time. If your business is a Sole Proprietorship and it’s no longer operating, you’ll have a better chance of qualifying for the OIC than a corporation or other business that is still operating.

Fresh Start Initiative

A More Accessible Installment Agreement

Here are the basic guidelines for Individuals seeking a monthly payment plan or Installment Agreement to pay their IRS back-tax debt.

Owe $0 - $25,000

Up to 72 months or the remaining months in the 10 Year Collection Statute.
No financial information required.
No tax lien determination required, which typically means that no tax lien will be filed, if one hasn’t already been filed.

Owe $25,001 - $50,000

Up to 72 months or the remaining months in the 10 Year Collection Statute.
Minimal financial information only required as verification of ability to pay, if you’ve previously defaulted an Installment Agreement. The current test criteria state no financial information required.
No tax lien determination required if Direct Debit Payments or Payroll Deduction Payments are used, which typically means that no tax lien will be filed, if one hasn’t already been filed.

Owe $50,001 - $100,000

Only considered under IRS test criteria through 9/30/2018.
Up to 84 months or the remaining months in the 10 Year Collection Statute.
No financial information required if Direct Debit Payments or Payroll Deduction is used.
Tax lien determination must be made, which means a tax lien will be filed in most cases.

Expanded Streamlined Installment Agreements

Criteria will be tested by IRS for tax debts of $50,001 through $100,000 through 9/30/2018. Hopefully the IRS ends up keeping the Expanded Criteria. It definitely makes paying back an IRS tax debt easier.

Small Business Installment Agreement

The Test Criteria applies to in-business Income Tax debts up to $25,000.

The Test Criteria also applies to out of business debts up to $25,000.

What About 941 Payroll Tax?
If your business owes $25,000 or less, including payroll tax, and you can pay it in 24 monthly payments, your business may qualify for a Streamlined Installment Agreement without providing financial information.

Sole Proprietor Tax

If you operated as a Sole Proprietor, your out of business tax debt up to $100,000 qualifies for the Test Criteria.

Direct Debit IA

Direct Debit Installment Agreement Payments are set up to be taken directly from your bank account.

A Direct Debit Payment is a must for Streamlined Installment Agreements on debts of $25,001 to $50,000. The current test criteria in place by the IRS through 9/30/2018 states that a Direct Debit Payment is preferred, but not required for this amount. However, using the Direct Debit Payment in this scenario will help to avoid a tax lien determination.

Payroll Deduction IA

Your monthly Installment Agreement Payment is set up to be taken directly from your paycheck by your employer before you receive it. Your employer must be willing to participate in this type of Installment Agreement payment for it to work.

Notice of Federal Tax Lien Filing

Generally, if you owe $10,000 or less, no tax lien determination is required, which typically means no tax lien will be filed. Prior to the Fresh Start Initiative in 2011, the lien determination threshold was around $5,000.
Also under the Fresh Start Initiative, the IRS will not be required to make a tax lien determination if you get into an Installment Agreement to resolve your tax debt of up to $25,000. The amount goes up to $50,000 if you utilize the Direct Debit Payment or Payroll Deduction Payment.

Tax Lien Withdrawal

The Fresh Start Initiative also allows a taxpayer to request a Withdrawal of their Tax Lien if the following criteria are met.

Tax liability is $25,000 or less
Direct Debit Streamlined Installment Agreement is set up, and
3 Direct Debit Installment Agreement payments have been paid timely

The IRS may also Withdraw your tax lien (different from a tax lien release) if you meet certain basic requirements and your tax debt is paid in full.

What Does This All Mean for Me?

It’s simple. Meet the criteria and get the resolution.

Although the IRS is trying to make it easier for delinquent taxpayers to resolve their back-taxes, you still must qualify for the resolution you want. Not every resolution will work for every taxpayer.

If you’re not sure about which resolution(s) you may qualify for, contact M&M. We’ll let you know if you qualify and how we help our clients get the best IRS resolution available.