What is the IRS Fresh Start Initiative & How Can I Use it to Help With My IRS Debt?
In 2020, the IRS Fresh Start Program remains one of the single best ways to deal with back taxes, especially if you owe excessive amounts of money.
The IRS Fresh Start Initiative was created to expand the benefits and assistance originally offered by the IRS Restructuring and Reform Act of 1998, making it ever easier for taxpayers to deal with excessive back taxes and get out of IRS debt.
This program remains fully available for the 2020 tax year, but if you’re looking to take advantage of the program, I recommend doing it immediately, because there’s no telling how much longer it may last.
Why would it disappear? Because there’s a good chance that taxes will end up in President Trump’s crosshairs before long, and he could choose to wipe out the IRS Fresh Start Program entirely, on a whim, like he may do to similar Student Loan Forgiveness Programs.
Keep reading and I’ll walk you through the entire process, from setting up all the initial paperwork to negotiating with the IRS and reaching an efficient IRS Tax Debt Settlement quickly, and as cheaply as possible.
Whether you choose to handle the IRS Tax Debt Forgiveness process on your own, or you choose to pay for assistance of an IRS Tax Debt Settlement company, my site was created to help you understand your tax issues so that you could make more informed decisions about how best to proceed in dealing with your IRS tax debt.
How Can the IRS Fresh Start Initiative Help?
The IRS Fresh Start Program was was created to help people with IRS back taxes deal with their debt more easily.
In fact, the Fresh Start Program introduced some major changes to IRS Tax Debt Relief laws, significantly loosening eligibility restrictions and removing some requirements entirely, making it possible for millions of additional Americans to receive the tax relief benefits they so desperately need.
The Fresh Start Program applies not only to individual tax payers, but also to small businesses having issues with their outstanding taxes, so whether you owe debt for yourself, or for your company, you’ll be able to take advantage of these outstanding benefits.
What Did the IRS Fresh Start Program Actually Do?
There are four main changes to IRS tax laws introduced by the Fresh Start Program, including:
- Higher Thresholds for Tax Liens
- Introduction of Tax Penalty Relief
- Easier Access to Installment Agreements
- Expansion of the Offer in Compromise Program
The rest of this page goes through each of the three elements above in detail, walking you through exactly what changes were introduced to the system by the Fresh Start Initiative, and then explaining how to take advantage of them to settle your taxes for significantly less than the IRS has demanded you pay.
Should you run into any questions while reading through this content, please feel free to post them in the Comments section below, and I’ll do my best to get you a response as quickly as possible.
1. Higher Thresholds for Tax Liens
The Fresh Start Initiative’s first major change to IRS tax laws was upping the minimum threshold amount of back taxes US citizens had to owe before they’d be hit with an IRS Tax Lien.
In most cases, the IRS agreed to stop issuing tax liens to anyone with under $10,000 in back taxes, meaning that you can now almost certainly completely ignore the IRS without being hit by a tax lien, until you’ve racked up about $10,000 in debt.
Though tax liens aren’t doled out as often as they used to, don’t think that means you’re able to get away free before hitting the magic $10,000 in back taxes owed, because you could still face other collective actions other than tax liens (like wage garnishments, etc.) before reaching the $10,000 minimum.
Another change the Fresh Start Program introduced to tax liens is that they can now be withdrawn once borrowers reach certain requirements for paying off their outstanding back tax debt, essentially, allowing borrowers who had been slapped with tax liens to purge them after they’ve paid enough of their back taxes off to get down under that same $10,000 threshold.
According to the rules of the program, you’ll be able to request that your tax lien be removed once you’ve satisfied this monetary requirement (paid off enough debt that you only owe the IRS less than $10,000), by filing out the IRS Form 12277, otherwise known as the “Application for Withdrawal”.
What’s more… if you agree to pay off your back taxes via a Direct Debt Installment Agreement (this is where the IRS automatically takes a cut of your paycheck each month, for a set amount negotiated in the tax debt settlement process), you can also request that your tax lien be removed, again, by using Form 12277.
And that’s a great deal for anyone who’s in the process of paying back their tax debt, and who plans on doing something like sell their house, business, or other major assets. This would allow you to continue paying back only a small amount of your taxes each month (whatever you negotiated with the IRS), and avoid having the IRS take a bunch of money from you after selling whatever asset you planned to offload.
The only bad news about these changes are that if you do end up getting your debt back over the $10,000 threshold, or if you default on your Direct Debit Installment Agreement, the IRS is going to come after you again by filing a new Notice of Federal Tax Lien, and officially resuming their collection activities.
2. Introduction of Tax Penalty Relief
If you’ve been struggling with back taxes for some time, then you’re probably pretty familiar with the concept of IRS tax penalties, which can account for up to 40% of the outstanding tax debt you owe the IRS.
Fortunately, part of the impetus for introducing the IRS Fresh Start Program was to help people deal with excessive tax penalties, and give them some financial assistance to get rid of their tax debt altogether, by allowing them to receive forgiveness for at least a portion of the penalties they’re facing.
The Fresh Start Program offers relief from a variety of different forms of tax penalties, including penalties for failing to file a tax return on time, failing to file a tax return at all, failure to pay your taxes on time, and failure to make tax deposits, when required.
For many taxpayers in a tricky situation, this will end up being the most valuable part of the entire Fresh Start Initiative, since it can help dramatically reduce your outstanding tax debt, saving you up to 40% of your total outstanding debt owed to the IRS.
3. Easier Access to Installment Agreements
The IRS Fresh Start Initiative also made it far easier to get access to installment payments for back taxes, which can save you when you end up owing far more than you can afford.
Installment Payments are perfect for taxpayers who can’t afford to pay their taxes off all at once, because they let you spread out your tax payments over a period of 72 months (that’s six years), making the payments much smaller, and giving you way more time to pay down the debt.
This is especially important for people who made or received a ton of money one year, but who already spent it before their tax bill came due (a common mistake people make when inheriting money, getting outlandish bonuses, winning the lottery, etc.).
Sometimes, the IRS will not allow you to qualify for the installment payment program until you’ve provided detailed financial statements to them, proving beyond all reasonable doubt that you really cannot afford to pay your taxes off all at once, but oftentimes, this part of the process can be skipped.
One thing to note is that you’re only eligible for this installment payment plan (without additional authorization), if you owe less than $50,000 in back taxes.
If you owe less than $50,000 in taxes, then you can send apply for an installment agreement using either the Online Payment Agreement tool (find it at IRS.gov), or by filing IRS Form 9465, the Installment Agreement form, as your official application paperwork.
If you owe more than $50,000, or if you need longer than six years to pay back your debt, then you have to supply the IRS with a Collection Information Statement (using either IRS Form 433-A or Form 433-F), which is essentially a request for approval to use the installment payment plan.
4. Expansion of the Offer in Compromise Program
Probably the biggest change to IRS tax law in decades, the final and most important contribution of the IRS Fresh Start Program was the expansion of the Offer in Compromise Program, which allows you to negotiate your debt with the IRS, and offer to pay back less than you actually owe.
I consider this to be similar to a Tax Debt Forgiveness Program, since it allows you to literally wipe out a portion of your debt (based on what you can afford to pay), and offer to pay back the IRS some percentage of the amount of money that they originally demanded.
An Offer in Compromise is an agreement you reach with the IRS, which lets you settle your tax debt for cents on the dollar, and with the amount you’re forced to pay ranging wildly, depending on what the IRS thinks you can actually afford.
The changes introduced with the Fresh Start Initiative made it easier to qualify for an IRS Offer in Compromise, and they also streamlined the program itself to make it easier to fill out the paperwork and get an approval for debt reduction.
First, the IRS was given additional flexibility in the way that they determined whether or not an individual qualified for approval on their Offer in Compromise letter, allowing the IRS more room for analyzing your ability to pay them back.
Second, because of the changes mentioned above, the IRS was able to expand eligibility for the Offer in Compromise program, and thanks to the reduced eligibility requirements, it’s now available to far more taxpayers than it ever was before.
The way to get an approval for an Offer in Compromise letter is to write it up such that the IRS believes you’re offering the most amount of money that they can possibly believe they’ll be able to collect, over a reasonable period of time.
This is precisely why most people who are submitting Offers in Compromise (and getting them approved), end up outsourcing the work to tax experts or debt settlement agencies; because an individual tax payer has no idea how the IRS determines what taxpayers can afford, or how close the taxpayer is to being honest about what they think is reasonable for repayment.
The IRS has proven that will simply outright reject any Offer in Compromise if they think you have the ability to pay back the full amount of the taxes that you owe them, either through a lump sum single payment, or even as a series of payments under the Installment Agreement program.
The most important parts of the IRS evaluation process for an Offer in Compromise is to evaluate your income, your assets, and the amount of money that you owe, using some basic math to determine what they think you can actually afford to pay.
If you’re interested in pursuing an Offer in Compromise, then you can play around with the Offer in Compromise Pre-Qualifier tool on IRS.gov, and get an idea of whether or not they would be willing to accept your projected Offer.
How Do I Apply for the IRS Fresh Start Program?
That’s the trick – there isn’t an actual Fresh Start Program to apply to, because it’s just the umbrella tagline for the series of updates I outlined above in this page’s content.
Instead of applying for the IRS Fresh Start Initiative, what you will be able to do is take advantage of the changes the Fresh Start Program introduced into IRS Tax Laws.
My recommendation for anyone struggling with large levels of IRS back taxes debt is to consider hiring an attorney, tax professional, or debt resolution agency to help you deal with your outstanding debt, because it’s become increasingly difficult to negotiate with the IRS, and especially to prove that they should allow you to write off some of your outstanding back taxes.
However, if you do choose to pursue an IRS tax settlement on your own, here are a couple things you’ll want to keep in mind when working with the IRS.
Who Qualifies for Fresh Start Program IRS Tax Relief?
There’s a few things you’ll need to do before you’re eligible to qualify for any of the benefits outlined above.
And while each of the programs has it’s own specific set of requirements, you won’t be able to qualify for ANY form of IRS tax relief until you’ve satisfied all of the eligibility conditions outlined below, so please pay close attention to each of these items:
Qualifying for IRS tax relief requires first:
- Filing all your tax returns
- Properly configuring your tax withholdings
- Proving that you don’t have enough money, or assets, to pay back your tax debt
- Making all your estimated tax payments for the current year (if you’re self-employed, or a small business owner)
- Making all your required Federal tax deposits (if you’re a small business owner, and you run a business with employees
- Not being in the middle of an open bankruptcy proceeding
If you fail to satisfy any of the eligibility conditions above, then you will be denied access to all of the benefits introduced under the IRS Fresh Start Program.
1. Filing All Your Tax Returns
The average person probably isn’t aware of this, but everyone operating in the tax resolution industry knows that the IRS will not even consider negotiating with you for any form of tax write-off until they’ve received tax returns for each and every year.
If you haven’t filed a tax return recently, for one or more years, then you’re going to need to get that taken care of right away, because you will have zero leverage, and literally no ability to negotiate for any sort of reduction in debt with the IRS until they have all your paperwork in hand.
If you want to take advantage of the IRS’s Fresh Start Program, then you’ll absolutely need to file any tax returns you’ve skipped out on.
2. Properly Configuring Your Tax Withholdings
Next, you’ll be required to make sure that all your current withholdings are correct, and you’ll also need to leave them consistent for a time period of at least 6 months.
The reason the IRS wants your withholdings to be correct, and consistent, is that they want to be confidant that you’re telling the truth about how much money you’re actually earning, and about how much money you should actually owe in taxes.
Until you’ve set and left your withholdings for at least 6 months of consistency, you won’t be able to use the Fresh Start Program’s benefits.
3. Proving You Can’t Afford to Pay the IRS
When people forget about a part of the process of resolving their IRS back taxes, this is usually the part that gets left out.
Part of the deal of earning a reduction in your tax debt is that you have to prove to the IRS you literally cannot afford to pay them back.
And for many people, that means you literally won’t be able to get any sort of forgiveness or assistance with your debt, because if you’ve got enough income or assets to cover your costs, then the IRS will simply tell you to go fly a kite.
IRS tax forgiveness benefits were created to help people who literally cannot afford to pay their debt, and they aren’t handed out easily.
This is another reason why people who owe lots of money may want to seriously consider paying an expert for their assistance, as it’s not a sure-thing, and can become quite tricky to navigate through some of the IRS’s traps.
4. Keeping up with Your Estimated Tax Payments
Anyone who is self-employed, or who runs a small business, will need to make sure they pay their estimated tax payments throughout the year, to make it look like they’re doing their best to keep up with their tax burden, otherwise the IRS will simply label you a deadbeat, and refuse your Offer in Compromise or other attempt at negotiation.
If you aren’t making regular payments based on the estimates of the total amount you’ll owe at the end of the year, then the IRS essentially writes you off as a bad person, or a person who failed to plan accordingly, and they won’t offer you any sort of assistance.
This is another reason that people tend to lean on the assistance of an expert, as it can be quite difficult to properly calculate the amount of money you should be paying each quarter in order to keep up with your debt.
And if you significantly underestimate the amount that you’re going to we by the end of the year, thus end up paying far too little along the way, then the IRS will wash their hands of your problem and basically say: “This one’s on you…”.
5. Making Required Federal Tax Deposits
One thing that the IRS is hypervigilant about is ensuring that business owners are keeping up with their payroll taxes and other taxes related to their employees.
What they’re trying to prevent is having business owners withhold taxes from employees, but not pay them to the IRS, claiming that they can’t afford it.
In their eyes, that’s essentially a theft of employee money (since it wasn’t given to the employee, OR the IRS), and it’s a huge, major, MASSIVE no-no for any business owner to operate in this fashion.
If you’re looking to get assistance of some sort from the IRS, then you’d absolutely better be up to date on your required Federal tax deposits, otherwise, they’re not going to offer you any sort of help when the hammer falls.
6. Avoiding Open Bankruptcy Proceedings
If you’re actively pursuing a Bankruptcy, then the IRS simply won’t have anything to do with your requests for help.
Personally, I’m not entirely certain why they won’t work with people undergoing bankruptcy proceedings, because my opinion would be that they could at least try to squeeze some money out of those people before everyone else gives up on the debt.
It is possible to discharge Federal Income taxes in a Chapter 7 bankruptcy, so if I were the IRS, I’d probably give people filing for that form a huge cut, and pray that I got at least a portion of the debt they owed, but that’s just not how they operate.
For whatever reason, the IRS will not negotiate with you – at all – if your’e undergoing any form of bankruptcy proceeding, so don’t expect the file bankruptcy on your debt, then negotiate down the amount you owe the IRS. It simply will not happen.
Foreign Income & Assets
I’ve kept this section separate from the requirements above, because it’s not a technical requirement of negotiating down your IRS debt, but it’s a very important point for anyone who has foreign-derived income or foreign assets.
If you’re looking to write off some IRS debt, and you have foreign-derived income, or foreign-located assets during the impacted period of time, then you may be in for a world of hurt, unless you deal with it appropriately.
Why? Because if you’re trying to hide this income or assets from the IRS, but they end up discovering them while investigating your finances, then you will be at risk for being sued for tax evasion (even if you didn’t have any criminal intent, but did it entirely by accident!).
If you’ve got foreign income and holdings, then I would absolutely recommend looking into the IRS Offshore Amnesty Disclosures Program before proceeding to negotiate for a tax settlement with the IRS, because you will need to at least consider utilizing the Offshore Amnesty Disclosures Program (so you can avoid the possibility of being labelled a tax cheat).
A second reason to consider taking advantage of the Offshore Amnesty Disclosures Program is that even if the IRS doesn’t treat you as a criminal and try to put you in prison, they’ll definitely hit you with penalties and fines for breaking their tax laws, and those penalties and fines are typically going to end up being far more expensive than the cost of paying taxes on your offshore income and assets.
This is another one of those points the tax settlement process where I would recommend getting the help of a tax attorney, CPA, or a debt settlement agency to sort out what you should tell the IRS, and how you should proceed, because getting any parts of this process wrong can risk massive penalties, fines, or even jail time.
Once You Satisfy All the Requirements Above – What’s Next?
After you’ve dealt with all the issues raised above, it becomes time to get down to business and start negotiating with the IRS.
The IRS will want you to pay all your taxes off at once, in a single lump sum payment, but the whole point of the IRS Fresh Start Initiative is to make it easier for taxpayers to qualify for alternative payment plans, so don’t give up hope just yet.
If you can prove to the IRS that it’s literally impossible for you to make your tax payment all at once, then you’ll be eligible to qualify for the series of monthly installment payments I referenced above, called an IRS Installment Agreement.
If you can qualify for an IRS Installment Agreement, you’ll be rewarded with the option of paying back your debt over a period of years (up to 6 years, or 72 months), with much more affordable, automatic payments being sent to the IRS until your debt has been wiped out.
How Should I Approach Negotiations with the IRS?
This is where the rubber meets the road, and you’re going to need to be ultra-careful about how you proceed.
Remember, whatever you file on your IRS tax returns is basically the evidence that the IRS will use against you (think of them like Police Officers, who are in it to convict you of owing them money), so you need to be extremely careful about what information you’re handing over in your returns.
And this is why I’m so insistent to recommend that people hire external help for dealing with this problem – unless you’ve got a strong background in finances, and specifically in accounting and tax laws, then you’re not going to have a good time navigating the waters and arguing with the IRS.
If you’ve ever dealt with ordinary debt collectors, then you know how frustrating it can be to argue your side of a financial disagreement, and when it comes to negotiating with the IRS, take your average, everyday debt collector, then ramp up their experience and dedication to 11; because the IRS negotiators are true pros.
Even though you may need to spend hundreds or even thousands of dollars paying a professional to handle the negotiations with the IRS for you, that often means saving money in the long-run, because you’ll be able to score a significantly better deal with the IRS.
If I Choose to do it Myself, What Will it Cost?
Technically, the IRS’s Fresh Start Program is “free”, as there’s no official application cost or anything like that, but you do need to pay something to deal with certain parts of the process, even if you do it all yourself.
First, if you choose to pursue an Offer in Compromise negotiation, then you’ll need to pay at least the $186 filing fee with the IRS, and you’ll also have to offer the IRS a down payment of about 20% of your owed back taxes.
You’ll face similar filing and setup fees to get on an IRS Installment Agreement, so be prepared to pony up some cash as soon as you start the negotiations process, and don’t assume that you’ll be able to get away without dropping any money up-front.
Finally, if you do end up signing an Installment Agreement with the IRS, then you’ll end up having to pay for that too; the cost is $52, and if you aren’t paying directly from a bank, then you’ll need to pay about twice as much ($120) to get the agreement going.
What Should I Do?
Honestly, it depends on your specific situation.
Some people will get the most mileage out of Installment Agreement plans, while others will simply need to negotiate down their total amount owed and then get it dealt with via the Offer in Compromise program.
It’s impossible to offer advice in a one-size-fits-all-way, because each individual’s specific financial concerns need to be taken into account before determining how best to proceed.
And that’s why I recommend hiring somebody to help; whether you go to a tax lawyer, a CPA, or someone who deals with IRS debt settlements, I think your best opportunity for finding great success will be had in outsourcing the work to an expert, and letting them guide you through the process.
My favorite tax resolution service is the IRS Tax Debt Relief Helpline, and they’re the only company I ever refer my readers to, because they’re the only ones I trust to get the job done right, and actually save you money!
If you’ve heard that it’s a bad idea to pay for help, because Tax Resolution Services can’t do anything for you that you couldn’t take care of yourself, and for free, let me clear up some confusion: that’s not necessarily the case, because you’re highly unlikely to have any idea how to proceed against the IRS.
Just think – how often do you Negotiate IRS Settlements? What sort of expertise have you acquired working with the IRS’s Fresh Start Program, or theirTax Debt Forgiveness Program? Do you know How to Stop an IRS Wage Garnishment?
The experts from the Tax Debt Relief Helpline can help you with all of these things, and more, as they spent over 40 hours a week battling it out with the IRS on cases just like yours!
Take your fight with the IRS to the next level by calling the Tax Debt Relief Helpline now at 1-888-692-7108.
Where Can I Go For Other Questions?
If you can’t afford to pay someone like the Tax Debt Relief Helpline for assistance or you’ve simply chosen to go it alone, then be sure to look at other pages of my site where I’ll teach you how to earn IRS Debt Relief yourself.
The most important pages to review are probably my Guides on IRS Tax Penalties, Paying IRS Back Taxes, Qualifying for Tax Debt Forgiveness, Reaching a Tax Debt Settlement, Avoiding the IRS Collections Process, and Enrolling in the IRS Fresh Start Program.
You’ll also want to read up on the IRS Taxpayer Bill of Rights so that you can understand what the IRS and their private debt collectors are allowed to do, and not allowed to do, as they attempt to get you to pay back your debt.
And if you run into any questions or have any thoughts about any of this stuff, then please feel free to post them in the Comments section below.
I’m happy to help and I appreciate any feedback that you can provide here, so please don’t be shy!
Disclaimer: Information obtained from Forget Tax Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of the Treasury, the IRS or any other Government Organization.