In an effort to clean up the devastation of the financial crisis, the IRS introduced major expansion to its Fresh Start Program, Offering Hope for Struggling Taxpayers
Nothing is worse (or more common) than constantly worrying about money, or the lack thereof. When taxpayers are struggling to survive in addition to slowly chipping away at a huge tax bill from the IRS, the situation can seem hopeless. However, the IRS Fresh Start program was supposed to make it more manageable for taxpayers and even small businesses to pay off back taxes and avoid intrusive enforcement tactics. Since the program was introduced in 2008, it has seen some major expansions to help taxpayers resolve their debt to the IRS for good.
IS THE FRESH START PROGRAM WORKING?
As an experienced tax attorney in San Jose, I wanted to address that question based on my clients’ experiences.
Tax Lien and Levy Help
When taxpayers fail to fully pay a tax debt on time, the federal government can claim a federal tax lien against their property, including real estate, financial assets, and personal property. With the Fresh Start initiative, taxpayers can now owe the IRS up to $10,000 before a Notice of Federal Tax Lien will be filed. However, each situation is assessed on a case by case basis.
If a lien is filed, the IRS Notice of Federal Tax Lien will alert creditors that a taxpayer’s property is now secured by the government. However, with the Fresh Start initiative, when a taxpayer meets certain requirements, the IRS may release the Tax Lien. Additionally, taxpayers may also qualify to have their lien notice withdrawn if they are using a Direct Debit installment agreement to pay off their debt to avoid negative credit marks.
This part of the initiative is working. Taxpayers who can pay their balance down to $25K and set up a monthly debit, can petition the IRS to release the lien after 3 payments. Prior to the Fresh Start Initiative, the taxpayer would have to pay off the balance if full, or show some extreme hardship to get the lien lifted.
The Fresh Start program also greatly streamlined the installment agreement provisions. The IRS threshold for using an installment agreement without having to provide financial statements has been raised from $25,000 to $50,000, providing opportunity for relief to thousands more Americans.
This provision is also working pretty well. Now, individual taxpayers can pay through a streamlined monthly direct debit payments for a maximum of up to six years, although interest continues to accrue on the outstanding balance.
Failure-to-pay penalties are one of the biggest issues a financially distressed taxpayer faces. To help individuals who are most in need, a six-month grace period on failure-to-pay penalties has been made available through the Fresh Start initiative.
The penalty relief will be available to wage earners who have been unemployed for at least 30 consecutive days up to the April tax return filing deadline and self-employed individuals who experienced a 25 percent or greater reduction in business income in the previous year.
This penalty relief is subject to an income limit of $200,000 if the taxpayer files as married filing jointly or $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose balance owed to the IRS does not exceed $50,000.
Even with the available penalty relief options, the IRS strongly encourages taxpayers to file their returns on time or file for an extension to avoid any further issues. To date, I have not petitioned for relief under this provision, so I cannot comment on this part.
Offers in Compromise
This is the big one! The Offer in Compromise is the IRS’ version of a settlement program and the IRS is MAKING DEALS!
An Offer in Compromise is an agreement that allows taxpayers buried in debt to settle with the IRS to pay less than the full owed amount. Fresh Start expanded and streamlined the OIC program, giving the IRS more flexibility when analyzing a taxpayer’s ability to pay and making the offer program accessible to many more taxpayers.
The IRS looks at several factors to make a decision regarding the taxpayer’s ability to pay, and generally will accept an offer if it closely reflects what the agency can expect to collect in a reasonable amount of time.
Not only did the Fresh Start Initiative allow more taxpayers to qualify for settlements, but the guidelines are allowing settlements that are almost 60% lower than they would have been under the old system.
Check out some of the recent Fresh Start results I am especially proud of:
Although many of my clients got huge benefits and savings from the Offer in Compromise Program, the law can get somewhat complicated, and can quickly derail unrepresented taxpayers. Even some tax professionals struggle with the navigation of this program. An experienced tax attorney can help to determine whether the IRS may be willing to accept an offer in compromise and get your financial life back on track.
We Are Your Fresh Start Experts!
Since its dramatic expansion in 2012, we have achieved amazing results for our clients through the IRS Fresh Start Initiative. At this point, it is uncertain how long this program will remain available, so it is important to act quickly. We help taxpayers in San Jose, San Mateo County, and the entire San Francisco Bay Area.
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