The Truth About the IRS Fresh Start Program

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  • The Fresh Start Program offers four options for paying past-due taxes.
  • Each payment option has its own eligibility requirements.
  • You can apply for the Fresh Start Program on your own or work with a tax relief company.

If you owe money to Uncle Sam, it may feel like a heavy weight on your shoulders. After all, the U.S. government has a host of remedies available to get you to pay. However, if a tax bill follows you like a dark cloud, the IRS provides a way out. It's called the Fresh Start Program, and it's open to any taxpayer who owes money and struggles to make payments. If that describes your situation, keep reading to learn more about how the Fresh Start Program can help.

What is the Fresh Start Program?

It's no secret that many Americans struggle to pay their taxes. The Fresh Start Program was designed to simplify paying taxes by streamlining procedures and offering payment plans. Here are a few benefits of the program:

  • May prevent a lien from being filed against you
  • In some cases, it can remove an existing tax lien
  • Reduces penalties and interest on penalties

Who qualifies?

Eligibility requirements include:

  • You must have filed all required tax returns for the past three years.
  • You can't owe more than $50,000 in taxes, including interest and penalties. If you do owe more than $50,000, you'll need to reduce your debt down to $50,000 or less before starting the program.
  • You must agree to pay your outstanding tax obligations within six years.
  • You must be up to date with all required estimated tax payments for the current tax year.
  • You cannot be involved in any tax evasion or fraud activities.

Four payment options

There are four different options associated with the IRS Fresh Start Program. The one that's right for you depends on the specific circumstances of your case.

1. Installment agreement

Once approved, you'll make affordable monthly payments to the IRS until taxes are paid in full. The IRS will continue to charge interest on the amount owed. However, once three direct installment payments are made and the total tax debt balance falls below $25,000, any existing federal tax liens or levies will be removed.

2. Offer in Compromise (OIC)

OIC allows qualified taxpayers to make a settlement based on a reduced amount in place of payment in full. To qualify, you'll need to meet these eligibility requirements:

  • You've filed all tax returns and made all estimated payments.
  • You're not in an open bankruptcy proceeding.
  • You have a valid extension for the current year return.

And if you're self-employed, the IRS will want to know that you've made tax deposits for the current and past two quarters.

3. Currently Not Collectible status

This status allows you to place payments on hold during periods of financial difficulty. Eligibility is dependent upon showing that paying both living expenses and back taxes will cause undue hardship. This status does not forgive tax debt but delays payment until the taxpayer is back on solid footing.

4. Penalty abatement

If you've been hit with significant tax penalties, you may be eligible for penalty relief. You'll need to provide the IRS with information regarding why your tax bill has not been paid. If the IRS finds that there's a reasonable cause for your existing tax bill, penalties may be forgiven. Penalties can add up quickly. Once those penalties are wiped away, you may find yourself in a better position to pay down the tax debt, or even put a few extra dollars in an emergency fund each month.

How to apply

To apply, write a letter to your regional IRS office informing it that you're interested in Fresh Start. Include a copy of IRS Form 843 explaining your situation. Include as much documentation as possible to bolster your claim. This may include insurance claims, death certificates of family members, medical statements, layoff notices, or any other proof of financial hardship.

If the IRS initially denies your request, contact a tax relief company. Find out how much it charges for its services and how successful its appeal efforts have been. If you have enough in your bank account to easily cover the charge, it may be worth utilizing its services. Your best bet is to work with a company recommended by a friend or family member. If that's not possible, research online customer ratings for area tax relief companies.

The Fresh Start Program does not make getting out of tax debt easy, but it does provide a path that makes it possible to find your way out.

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