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What to Know About the IRS Fresh Start Program

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Life happens. No one plans of things going badly, but for some they do. Things like illness, trauma, accidents, or even just plain old random chance can put you in a situation where you're short on money. And when you're short on money, it can be hard to pay the tax man. Back in the day, there wouldn't have been a whole lot of options for you. Over time, the IRS has recognized it's better for the country as a whole if you give people a bit of a break when they need it. And so over time, they've developed the fresh start program. The fresh start program is a program that has different options to help people who have excessive back taxes pay them back/ But, what exactly are they?

What Does the Program Do?

As mentioned before the program is a rather large expansion of the options people with back taxes have to deal with their debt. The first area is they've increased the threshold for tax liens. You now have to have more debt with them before they'll stick a lien on your property than you did before. They also introduced tax penalty relief. This is a program where under certain circumstances they'll drop any tax penalties you otherwise would have incurred through non-payment. They've also made it easier to access an installment agreement, and expanded the offer in compromise program. All of these are discussed further below.

Higher Thresholds for Tax Liens

First, of course, a lien is a claim the IRS (or anyone else you owe money too) can file against your property. If they do it's part of the public record and can be easily found through a title search. This is bad because it means that if anyone were to buy the property with the lien on it from you, they would acquire the debt that the lien is for. So, they obviously won't. Having a lien on your property also severely affects your credit and ability to access things like loans and mortgages.

So how did the rules change? Well, firstly they increased the limit after which they'll apply a lien. Now the debt has to be over $10 000. They also changed the rules so you can apply to have the lien removed as soon as you owe them less than that, or you agree to pay it back through the direct debit installment agreement, which is their wage garnishment program.

Introduction of Tax Penalty Relief

Tax penalties can actually be a huge part of what you owe the IRS. In fact, they can be up to 40% of the total owed. You can incur penalties for all kinds of things, including failing to file a tax return, pay on time or deposit certain taxes as required.

Fortunately, the IRS has realized that's a bit ridiculous. Now they will consider getting rid of the penalty if you had intended to do what you were supposed to, but there was a reasonable reason you weren't able to. These reasons can include but are not limited to, fire, natural disaster, health issues, job loss and even a death in the immediate family. In order to apply you also have to have had no penalties for the three years prior to the year you were penalized, have all required returns filed and have paid or arranged to pay any tax due.

Easier to Access Installment Agreements

An installment agreement is basically an agreement where you can pay any money you owe over 72 months (six years) instead of having it all due at once. This program is particularly good for people who make a lot of money one year, but don't save any to pay taxes. The program is accessible to anyone who owes less than $50 000 in back taxes. You can apply for one using either the Online Payment Agreement Tool found at IRS.gov or by filing form 9465. If you owe more than $50 000 or need longer to pay, you'll need to supply the IRS with a Collection Information Statement.

Expansion of the Offer in Compromise Program

The offer in compromise program is a program that allows people to pay less than they owe to settle their debt with the IRS. This was a program that existed before, but the changes introduced with the fresh start program made it easier to qualify and streamlined the whole process to make the application easier.

How the program works is you write up an Offer in Compromise letter that says what the maximum amount of your back taxes you can pay is over what timeframe. The IRS will then do their own calculations to determine if that is, in fact, the case and approve or deny it. This is often outsourced to a tax professional, as they have a better idea of how the IRS determines such things, and can therefore craft an offer they're likely to accept.

Is This Really a Good Idea

Yes. The program has been around for quite a few years now and is an expansion of similar programs that have been around for longer. It's been around long enough now that the IRS would know if they're making or losing money because of it.

There are also more and more studies coming out all the time that show that if people have better access to help when they're down they end up needing far less help over their lives. As such while it may seem like giving out free handouts to some, it's more of an investment in the future. Not just of individuals either, but the nation.