What Is the IRS Forgiveness?
The IRS Fresh Start Initiative was created in 2011 to assist taxpayers federal tax debt. The Fresh Start program (also known as IRS Forgiveness program) has now been expanded to provide a workable solution for a greater number of taxpayers.
By adjusting solutions to better reflect the current economic reality, the IRS hopes to enable taxpayers to resolve their tax debt in as little as two years instead of the four to five years. This was the norm under the earlier version of the program. An overview of the changes that have been made to each of the Fresh Start program’s repayment options is provided below.
1. Offer In Compromise: Overview
An Offer in Compromise (OIC) is an agreement entered into by the IRS and a taxpayer, in which the IRS agrees to settle the taxpayer’s tax liabilities for less than the full amount owed and the taxpayer agrees to pay the reduced amount in full within one year.
It is imperative that taxpayers make an IRS OIC proposal that is reasonable and reflects the taxpayer’s actual financial situation. The IRS will look at the taxpayer’s income and assets to gauge the taxpayer’s ability to pay and the likelihood that the IRS could collect the full payment owed through the standard debt collection process. The IRS is not likely to accept an OIC in situations where they believe the taxpayer is capable of paying the full amount owed whether in one lump sum or by making regular payments spread out over time.
The IRS Fresh Start Program streamlined and expanded the qualifications of the Offer In Compromise (OIC) program allowing more tax payers to qualify for the program benefits.
- A revised method for calculating the tax payer’s future earnings.
- Monies spent to repay student loan debt, and pay state and local tax debt are now allowed to be calculated as accepted monthly expenses
- Expanded the Allowable Living Expense category and increased the amount.
- Narrowed the parameters and added clarification regarding when a dissipated asset would be included in a calculation of reasonable collection potential.
- Clarified shielding of equity in income assets used to earn income in an ongoing business.
2. IRS Tax Liens: Overview
An IRS tax lien is a legal claim levied against a tax payer’s assets as a guarantee of payment for outstanding tax debt. The property cannot be seized to pay the debt but the IRS will be paid the full amount that’s owed to them.
A tax lien can be filed against individuals, trusts, estates, partnerships, associations, companies, corporations or any other organization that has unpaid taxes. Once set in place, the tax lien will remain until the entire outstanding debt has been satisfied. The lien allows the IRS to collect the entire debt owed from the proceeds when a property is sold.
There is frequent confusion regarding the difference between a tax lien and a tax levy. A tax lien grants the IRS the right to recoup any outstanding tax debt owed from the proceeds of property when it is sold. A tax levy allows the IRS to immediately seize tax payer property and sell it to recoup past due tax debt owed.
- The IRS Increased the minimum past due tax that must be owed to trigger a tax lien from $5000 to $10,000.
- A tax lien withdrawal will be issued when the lien amount is satisfied or the debt has expired AND the tax payer has been in compliance on tax filings and payments for three years. Additionally, business owners and self-employed must be in compliance with estimated tax payments.
- An individual who arranges a 60-month direct debit installment agreement and has an outstanding balance below $25,000 is eligible to have the tax lien withdrawn after making three consecutive payments.
3. I Owe The IRS and Can’t Pay! Installment Agreements: Overview
An IRS extended installment agreement is available for people who owe less than $50,000 in outstanding tax debt. Installment agreements are intended to help financially strapped taxpayers by allowing them up to six years to pay outstanding tax debt without incurring additional penalties and interest. IRS collection activities like wage garnishments, tax liens, and seizure of assets are halted as long as the terms of the agreement are being met.
The IRS Fresh Start program expansion includes the following changes to installment agreements:
- The threshold for which an individual can qualify for a Streamlined Installment Agreement was . increased from $25,000 to $50,000.
- The tax debt amount threshold for small businesses to qualify for a direct debit installment agreement was increased from $10,000 to $25,000.
- Small businesses are allowed to pay down balances above $25,000 in order to qualify.
Who Qualifies For The IRS Fresh Start Program?
The IRS Fresh Start Program is available for individual taxpayers and small businesses who are looking for a solution that will allow them to pay their existing unpaid tax obligations over time, using a direct payment structure.
Tax payers must meet the following requirements to be considered for the Fresh Start Program:
Individual Tax Payer Requirements:
- Outstanding tax obligation of up to $50,000. If tax debt is more than $50,000, the excess amount must be paid down to meet the $50,000 cap before acceptance into the Fresh Start program.
- Tax payer must be able to pay off the debt obligation completely within 60 months
- The tax payer is a first time debtor with no history of previous unpaid tax obligations
- The taxpayer agrees to have direct payments removed from their bank account automatically
According to the terms of the installment agreement.
- All required tax filings are current through the most recent tax year.
- The tax payer must be able to make the required installment payments, file new tax returns on time, and incur no new tax debt while the agreement is in effect.
- If filing for an OIC, the taxpayer must be able to pay the agreed upon settlement total within 12 months.
- Married couples filing jointly may apply for the program as long as one spouse has met the criteria.
- Self-employed tax payers are eligible for the program if they can show a 25% decrease in earned income as a cause of tax debt
- The program is available for individuals earning less than $100,000 yearly, and married couples earning less than $200,000 yearly.
Business Tax Payer Requirements:
- The business owes less than $25,000 in outstanding tax debt and is willing to pay debt in full within 34 months.
- Federal tax filings and payments must be current
- The business has not fallen behind and incurred outstanding tax debt with the IRS in the past.
Requirements specific to the OIC Program
Taxpayers must meet at least one of the following conditions to qualify for an OIC settlement:
- Doubt As To Liability: The debtor has reason to doubt the accuracy of the assessed tax liability
- Doubt As To Collectability: The debtor can show that the debt is not collectible by the IRS collections department
- Effective Tax Administration: The debtor does not contest liability or collectability but can prove that collection of the debt would “create an economic hardship or would be unfair and inequitable.”
How To Apply For The IRS Fresh Start Initiative?
Taxpayers must file all of their back and current tax returns before applying for The IRS Fresh Start Program or requesting repayment options.
When your taxes have all been filed and you are ready to proceed, visit IRS.gov and sign up for the Fresh Start program using the IRS Online Payment Agreement tool. You will be asked to select the repayment option you intend to use before submitting the enrollment form.
If you would rather enroll by mail, you can download IRS Form 9465 to fill out and submit to the government by postal mail.
Tax payers are urged to give serious consideration to hiring a tax professional to assist with assembling and submitting the required documentation requested by the IRS. The process can be complex, especially if an OIC application is involved.
If approved for the Fresh Start program, tax payers must be prepared to comply with the requirements by filing all tax filings and submitting all required payments on time. If the terms of the Fresh Start program are violated, the program may be revoked and you could be required to pay the debt in full plus penalties and interests.
Settling your outstanding tax debt obligation can help you avoid costly penalties and interest, wage garnishment and property seizures giving you the opportunity to start again with a fresh clean slate.
The IRS Fresh Start program could be the solution you have been looking for to get out from under your outstanding tax obligations and start move towards your future.
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