The IRS Fresh Start Program Go-To-Guidebook

Table Of Contents:
  • Introduction
  • Chapter 1: How Does The IRS Fresh Start Program Work?
  • Chapter 2: Do I Qualify For The IRS Fresh Start Program?
  • Chapter 3: How Do I Apply For Tax Relief Under The IRS Fresh Start?
  • Chapter 4: What Are The Fresh Start Repayment Options?
  • Chapter 5: How Long Does The Fresh Start Process Take?
  • Chapter 6: How Do I Get My IRS Debt Forgiven?
  • Chapter 7: How Much Will The IRS Settle For?
  • Chapter 8:  Is There A One Time Tax Forgiveness?


The IRS Fresh Start Program, is an umbrella title for any of a series of tax law changes dating back to 2008. The IRS created the Fresh Start Program to help taxpayers pay off their past due tax obligations. Significant changes made in recent years may affect your eligibility today. This guidebook will help you access the tax relief tools in the IRS Fresh Start Program 

Chapter 1: How Does The IRS Fresh Start Program Work?

The IRS Fresh Start Program launched in the aftermath of the 2008 Recession. The IRS saw many taxpayers struggling to repay tax debt after the recession. The program realigned existing tax policy to better match the current economic reality.  It removed outdated procedures that were out of step with economic reality.  

The Fresh Start Program is not a magic wand. It was not designed to wipe the slate clean. The program will not erase taxpayer debt. 

The Fresh Start Program works by removing obstacles and simplifying repayment. The changes below help taxpayers repay past due tax debt.

Tax Lien Policy Changes 

Federal tax liens will only apply on tax debt greater than $10,000. This doubles the original $5,000 threshold.

Public notice of a tax lien withdrawal is no longer required in the following situations:

    •  The past due tax debt is paid in full or the statute of limitations has expired
    • The taxpayer signs a direct debit installment agreement, AND meets the following criteria:
      • The signer is a qualifying taxpayer 
      •  The Taxpayer owes $25,000 or less 
      •  The installment agreement will pay the entire debt in less than 60 months
      •  The taxpayer is in full compliance with all filing and payment requirements
      •  The taxpayer has made at least three consecutive installment payments
      • The taxpayer has not defaulted on current, or previous direct debit installment agreements 

Offer In Compromise Changes 

Eligibility for the program is partly based on future earning potential. The IRS reduced the number of years it will include in calculations. This change will allow a greater number of taxpayers to qualify for the program.

 The IRS will now base eligibility on one year of future earnings for taxpayers making a lump sum payment. Previous formulas included four years of future earnings.

The IRS will look at two years of future earnings for installment payments. Previous formulas included five years of future earnings 

Installment Agreement Changes

Taxpayers with up to $50,000 in tax debt can now qualify for a Streamlined Installment Agreement.  The original tax debt cap was $25,000.

  • Small businesses with up to $25,000 in tax debt can now qualify for a Direct Debit Installment Agreement. The original tax debt cap was $10,000
  • Financial disclosure to the IRS is reduced or eliminated
  • Payment term approval no longer requires an IRS manager 
  • Taxpayers are no longer required to liquidate assets
  • A simplified process allows agreements to be set-up in one visit
  •  “Currently Not Collectible Debt” status will now stop all collection activity
  •  The IRS requires less documentation for taxpayers owing less than $10,000 in tax debt 

Chapter 2: Do I Qualify For The IRS Fresh Start Program?

Taxpayers with the following criteria can qualify for the IRS Fresh Start Program.

  • Self-employed individuals must show a decrease in net income of at least 25%
  • Married couples filing jointly must earn less than $200,000 per year. When filing separately each spouse must earn less than $100,000 per year.
  • Individuals must earn less than $100,000 per year
  • The total tax debt owed must be less than $50,000 dollars
  • The taxpayer cannot be currently in bankruptcy, or obtaining a bankruptcy judgement

All tax returns, going back at least six years, will need to be filed and accepted by the IRS before applying. The IRS will reject the application of any taxpayer with un-filed tax returns.

The IRS will want to see tax documents for the current fiscal year. It is crucial that these documents show the correct withholding amount. The IRS needs to know that new debt is not being created while they are paying off the old debt.

You should assemble all documentation in advance. Consider having a tax professional review the documents to ensure they are complete. You must show that you lack the money, or assets to repay your full tax debt.  You must also show that you are ready and willing to cooperate with the IRS to pay your tax obligations. 

Chapter 3: How Do I Apply For Tax Relief Under The IRS Fresh Start? 

The application process for the IRS Fresh Start Program can be challenging. There are no IRS customer support case managers to walk taxpayers through the process.

Simple installment agreements can be set up using the Online Payment Agreement tool on the official IRS website. You will need to register with the IRS and provide documentation to verify your identity before using the tool.

Taxpayers applying for the Fresh Start Program to reduce debt should contact a tax professional.  Talk to a pro before filing a tax return or providing any financial statements to the IRS.  The IRS can use filed documents to your disadvantage at a later stage of negotiations.  A tax professional can help you prove that you have met baseline requirements.  This will keep the IRS from rejecting your application due to an overlooked detail.

A tax professional will help negotiate the terms of any IRS agreement. Remember, when dealing with the IRS, a small error may come with big consequences. A mistake may cause your application to be denied. You could even be barred from participation in future programs.

Be prepared to pay the application fees associated with the program you are applying for. For example, there is a $186 filing fee to apply for the Offer in Compromise program. You should be prepared to pay 20% of the past due tax debt.

A savvy tax professional may be able to reduce the amount of back taxes you must pay up front. This will be a significant benefit during negotiations. The IRS will generally request a lump sum payment of back tax debt. This is a request that most taxpayers are not financially able to meet. 

Chapter 4: What Are The Fresh Start Repayment Options?  

The IRS Fresh Start Program offers three different paths to tax debt relief.

Federal Tax Lien  

A tax lien is an official document filed by the IRS to secure their interest in your tangible assets. Liens are attached to the title of assets such as cars, boats, or planes. They can also attach to the deed of real estate assets. A tax lien serves as notification that the property is being used to secure payment for a past due tax debt. Payment of the past due debt is required before the property or asset can transfer to a new owner.  

Tax liens are reported to the credit bureaus. This can have an adverse effect on your credit rating. You may not be able to obtain credit until the lien is withdrawn. The lien is withdrawn after you pay the past due debt. If you have set up an installment agreement you can ask that the tax lien be withdrawn before the debt is paid.

Offer in Compromise 

The IRS may agree to forgive some part of the past due obligation if you cannot pay the full amount. This agreement is known as an Offer in Compromise. 

Offer in Compromise agreements are exceedingly rare.  Approval is more likely if you have a tax professional prepare your application, and negotiate on your behalf. You will need to prove that paying the full tax obligation would cause hardship. The IRS may agree to accept less if they believe they will not be able to collect the full payment.

Your application must state how you intend to pay the remaining debt. You can choose one of two repayment options.  

  • A Lump Sum Cash Offer
    • A lump sum offer requires payment of all remaining tax debt within five months of approval. 
  • Periodic Payment Offer
    • A periodic payment offer allows one year for payment of the remaining tax debt. The amount may be paid in regular installment payments.

If approved, you must be vigilant about making every payment in full, and on time. The IRS can void the agreement completely if you miss a payment, or fail to send the full installment. If the IRS nullifies the agreement they will reinstate your original tax debt. The IRS can also order immediate payment of the reinstated debt in one lump sum.  

Installment Agreements 

Installment agreements are the most common repayment option.  Most taxpayers will qualify for this category of debt relief. Taxpayers can contact the IRS directly to set up a simple installment plan. Contact a tax professional first to negotiate repayment terms or request penalty forgiveness.  

If you have less than $50,000 in tax debt, you do not need financial documentation. You can set up flexible monthly payments, and take up to 72 months to pay.

If you have a debt obligation greater than $50,000 you will need to provide documentation. You will need to show proof of income, and bank account statements. You may need to provide a detailed accounting of assets and investments as well.

Chapter 5: How Long Does The Fresh Start Process Take? 

The application and approval process for Fresh Start Programs can be lengthy. It may be several months to one year before the IRS approves a final repayment agreement. As long as you are complying with IRS requests you will not be penalized for this time.

Once approved, the repayment time will depend on the total amount owed and the dollar amount you can pay each month. The entire process can take from two to six years.

Chapter 6 : How Do I Get My IRS Debt Forgiven?  

It is very uncommon for the IRS to completely forgive past due tax debt outright. The IRS may agree to reduce past due tax debt by accepting an Offer in Compromise. 

Chapter 7 : How Much Will The IRS Settle For? 

The IRS uses the “Reasonable Collection Potential” (RCP) to calculate debt recovery potential. This is how the IRS determines what dollar amount they will accept as repayment.

The RCP formula analyzes your personal financial records to determine your discretionary income. Your bank statements, pay stubs, and bills will provide a snapshot of your budget.  Discretionary income is the income remaining after all essential bills are paid. The RCP is calculated by multiplying the monthly discretionary income by 24 months. Generally the RCP result is the smallest amount the IRS will settle for to repay tax debt.  

Chapter 8 : Is There A One Time Tax Forgiveness?   

Unfortunately, the IRS does not offer one time tax forgiveness. An Offer in Compromise can provide partial tax forgiveness. It is exceedingly rare for the IRS to agree to debt forgiveness programs. Consult with a tax professional before contacting the IRS for the best chance of approval. 

IRS Fresh Start Program

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