The IRS Fresh Start Initiative was created in 2011 to provide aid and non-state IRS tax relief to specific categories of struggling taxpayers. This program is available to individuals and small businesses that meet particular criteria and qualify for the program.
Knowing qualification requirements, essential terms, and application terms and conditions is necessary for anyone with tax issues who wants to benefit from this tax relief program.
What is the IRS Fresh Start Initiative?
The IRS Fresh Start Initiative is a federal program designed to help people and small businesses struggling with federal taxes. In recent years, the IRS expanded the program with a new element called the Offer-in-Compromise (OIC).
The OIC was created to help struggling taxpayers pay off their tax problems with six or more monthly payments within 24 months by settling the tax liabilities for less than the total amount owed.
If the IRS believes the taxpayer isn’t struggling and can pay back what they owe the IRS in full, either with a lump sum payment or in a payment installment agreement, the agency generally won’t accept an Offer-in-Compromise.
IRS Fresh Start Initiative vs. IRS Fresh Start Program: Is There a Difference?
No, there is no difference between the Fresh Start Program and the Fresh Start Initiative. Both names refer to the same IRS plan.
The Fresh Start Program (or Fresh Start Initiative) is an umbrella term for the different tax debt relief initiatives offered by the IRS to taxpayers that either accidentally failed to pay what they owe or couldn’t due to financial hardship or exceptional circumstances.
IRS Fresh Start Initiative Requirements: Do You Qualify?
Taxpayers looking to participate in the Fresh Start Initiative and benefit from the OIC must meet all eligibility criteria and agree to pay off their taxes in multiple installments over a reduced period.
Eligible taxpayers must owe less than $50,000 or reduce their outstanding debt to $50,000 or less before starting the program. The IRS reviews all applications to ensure OIC eligibility; filing does not guarantee acceptance into the program.
Fresh Start Program Requirement #1: Unfiled Tax Returns Must be Filed
If you have any tax returns you are legally required to file as per your status under IRS Publication 501; you must file them as soon as possible before applying. If the IRS determines you haven’t done so, the agency will return your offer and application fee, then apply any payments you’ve made.
Example: Single taxpayers aged under 65 making $13,000 in gross income a year must file a tax return as the number exceeds their category minimum of $12,550.
Fresh Start Program Requirement #2: You Received a Tax Debt Bill From the IRS
When making an offer, you must have received a bill for at least one federal tax debt. If you have, include it with your submission, as it helps prove you are in tax debt due to federal taxes. Non-federal debt, such as state tax debt, doesn’t apply.
Example: An example document you can provide is the IRS Notice CP503: Second Reminder for Unpaid Taxes.
Fresh Start Program Requirement #3: You Must Be Caught up on All IRS Tax Payments for the Current Year
Before the IRS can consider your offer, you must have made all required estimated payments for the current tax year to prevent further debt from accruing.
Example: If your estimated tax payment period is between September 1st and December 31st, your due date for the current tax year is January 15th of the following year.
Fresh Start Program Requirement #4: If a Business Owner, You Must Be Caught Up With Tax Deposits
If you are a business owner with employees, you must make all required federal tax deposits for the last three fiscal quarters (current quarter plus the two preceding).
Example: If applying between the months of October and December, the current quarter is Q4. Therefore, federal tax deposits for Q2, Q3, and Q4 must have been completed before applying.
IRS Fresh Start Initiative Requirements for Business: Does Your Business Qualify?
Businesses that owe outstanding taxes to the IRS are eligible for the Fresh Start Program just like individual taxpayers, provided the company owes less than $25,000 and meets eligibility criteria specific to businesses.
Fresh Start Program Business Requirement #1: 24-Month Payment Terms
A business is eligible for the IRS Fresh Start Initiative if it can pay the amount they owe within 24 months or less.
Example: If a business owes $19,500 to the government and is accepted into the Fresh Start Program on December 2022, it must pay the government the full amount before October 2025 (the 34th month following December 2022).
Fresh Start Program Business Requirement #2: Caught Up On Current Year IRS Filings and Payments
Before the IRS can consider the business’s offer, it must be up-to-date on all current federal tax filings and payments.
Example: The IRS will not consider an OIC from a business if it hasn’t yet filed federal income taxes for the current quarter.
Fresh Start Program Requirement #3: Must Be the First Offense
The IRS only considers Fresh Start applications for a business if it’s the first time it has fallen behind on federal tax payments.
Example: A business that has been late on federal tax payments more than once may be ineligible.
How COVID-19 Affected the IRS Fresh Start Initiative
During the initial stages of the pandemic in 2020, the IRS was forced to temporarily shut down parts of its operation, such as mail processing. On March 25, 2020, the IRS announced the People First Initiative, a plan designed to adapt to the new conditions and provide extra assistance and relief to taxpayers.
Did the IRS Fresh Start Program Change with COVID-19?
Although the nature of the program itself did not change, the IRS provided extended deadlines and additional support for taxpayers engaged in the OIC process.
IRS People First Initiative: Is It Still Active?
No, the People First Initiative (PFI) program has ended. The IRS deployed the People First Initiative from April 1st through July 15, 2020, to address unprecedented tax-related challenges due to the COVID-19 pandemic. The IRS did not renew or extend the program after its termination.
Temporary Changes to the Fresh Start Program
The Fresh Start Initiative received the following temporary changes, all of which expired on July 15, 2020:
Temporary Change #1
Taxpayers were allowed to temporarily suspend their payments to the IRS using Installment Agreements if they were unable to enter into compliance.
Temporary Change #2
The IRS suspended all payments on all accepted Offers-in-Compromise between April 1, 2020, and July 15, 2020.
Temporary Change #3
Most federal tax liens and levies started by IRS field revenue officers were temporarily halted, including seizures.
Temporary Change #4
The IRS temporarily stopped issuing new automatic liens and levies.
Temporary Change #5
The IRS temporarily stopped forwarding new delinquent accounts to private tax collectors. Additionally, the agency temporarily suspended the issuance of Passport Certifications to the U.S. Department of State, which would have prevented taxpayers in the “seriously delinquent” category, those who owe more than $55,000, from receiving or renewing passports.
IRS Fresh Start Program Details: 5 Relief Initiatives
The IRS Fresh Start program consists of five elements designed to offer taxpayers various relief and assistance plans, help reduce their federal tax debt and avoid accruing additional debt.
Depending on the amount owed and the number of initiatives selected, a taxpayer taking advantage of the Fresh Start Program can significantly reduce or even eliminate their federal tax backlog.
1. Installment Agreement (IA)
An Installment Agreement (IA) is the IRS’s equivalent of a long-term payment plan. If approved, an IA plan lets a taxpayer pay a fixed amount through automatic monthly payments using one of the approved methods, such as via debit or credit card, through a traditional or online bank account, or the Electronic Federal Tax Payment System.
While on an Installment plan, the borrower pays a fixed installment each month throughout the plan. The money paid each month goes directly to the taxpayer’s remaining federal tax debt. Taxpayers can pay more each month to help reduce the debt quicker and minimize interest and penalties, but the minimum must be paid each month to remain in good standing and avoid default.
Example: A taxpayer who owes $30,000 of unpaid federal taxes may contact the IRS to request an Installment Agreement and pay what they owe in fixed, monthly installments. The IRS reviews the taxpayer’s income, expenses, and financial status, determining they can afford monthly payments of $600.
This rate allows the taxpayer to repay their back taxes in full within 50 months, provided they do not miss any payments. (The taxpayer will continue to accrue penalties and interest until the debt is paid in full or the statute of limitation expires.) The IRS may request updates on the taxpayer’s financial information at any time and adjust the rate accordingly.
What We Love
- Taxpayers currently on an Installment Agreement may reduce future penalties and will no longer receive IRS collection letters.
- IA installments are customizable: Taxpayers can pay more each month or pay the remaining balance in full to lower overall interest paid and avoid penalties accrued for late taxes.
- IA plans provide peace of mind by giving taxpayers up to 72 months to repay what they owe, depending on the amount.
What to Consider
- The IRS can continue applying interest to the applicant’s total debt, meaning they may pay significantly more than they owe.
- Negotiating lower installment values can be challenging without the help of a professional tax relief firm.
2. Offer-in-Compromise (OIC)
The Offer-in-Compromise initiative allows taxpayers who cannot settle 100% of their federal tax debt to resolve it for less than the total amount owed, provided the taxpayer meets the IRS’s eligibility criteria.
The taxpayer must also offer an amount equal to or superior to what the IRS considers a reasonable amount: the Reasonable Collection Potential (RCP). The IRS calculates an applicant’s RCP by adding their net realizable equity in assets and their net monthly income.
OIC plans offer taxpayers two options to resolve their debt: with lump sums (5 payments or less within 5 months) or via monthly installments over a 6-to-24-month period, depending on the amount owed.
- Taxpayers choosing to pay using lump sums must submit 20% of the offer amount alongside the application fees.
- Taxpayers choosing to pay in monthly installments must send the first monthly payment alongside the application fees and pay the remaining balance over 6 to 24 months, depending on the IRS’s decision.
Example: The IRS is evaluating a taxpayer’s request with $50,000 of federal tax debt. The taxpayer’s net realizable equity is $10,000 in assets and an estimated monthly disposable income of $200. This taxpayer likely qualifies for an OIC. If the taxpayer chooses to pay using lump sums, they must submit $10,000 (20% of the total amount) alongside the fees, then pay the rest in 5 sums or less in under 5 months.
What We Love
- The primary benefit of an OIC plan is the possibility of resolving your debt immediately for less than the listed total.
- Sending an OIC application suspends all IRS collections, providing peace of mind. If the IRS approves your offer, all tax liens filed against you are released.
What to Consider
- Qualifying for an OIC plan is challenging. The IRS has the final say on all applications, even if you appear to meet all criteria.
- Application fees are costly: $205 plus the initial payment, both of which are non-refundable.
3. Currently Not Collectible Status (CNC)
Currently Not Collectible (CNC) is an IRS account status reserved for individuals who cannot afford to make tax debt payments without falling into the IRS’s definition of significant hardship.
While CNC status does not offer a way to resolve tax debt like IA and OIC plans, the status provides relief to taxpayers by suspending federal tax collection on their account.
Example: A taxpayer eligible for CNC status is typically an individual with little to no disposable income after paying all essential living expenses. In other words, making a tax debt payment would create hardship because it would cut into that person’s ability to pay rent, utilities, groceries, and other essentials.
What We Love
- Having CNC status suspends income collection, property seizures, bank levies, tax liens, wage garnishments, and most other forms of tax collection. The IRS will also stop sending IRS notices and other letters as long as the status is active.
- A taxpayer can theoretically remain in CNC status for as long as the IRS believes you are financially unable to pay the outstanding debt. This could potentially go beyond the 10-year statute of limitations which is the length of the period for collection after assessment of a tax liability. After 10 years, the government’s fight to pursue collection expires.
What to Consider
- The CNC status is not permanent, and the IRS will resume its collection duties on your account once the CNC period ends. CNC status does not resolve your debt nor provides alternative ways to pay what you owe.
- The IRS will still charge interest and penalties even if your account has CNC status.
4. First-Time Penalty Abatement (FTPA)
Taxpayers who have received their first tax penalty from the IRS may qualify for First-Time Penalty Abatement (FTPA), also known as First-Time Abate (FTA). This initiative is an administrative waiver available to taxpayers that meet specific criteria.
A taxpayer may receive a penalty abatement if their IRS account has no prior history of penalties, no outstanding requests for returns, and all due taxes have been paid or arranged for payment.
Example: A taxpayer realizes they have failed to file their tax returns for a single tax period during the last year, meaning their penalty qualifies as a Failure to File (FTF). The regular penalty for an FTF is typically 5% of the unpaid taxes for each late month, up to 25%. If the taxpayer has no prior penalties, they may be eligible for a First Time Penalty Abatement.
What We Love
- FTPAs apply for three types of penalties: failure to pay, failure to file, and failure to deposit.
- Individuals and businesses can both receive an FTPA.
- If granted, the FTPA is a penalty relief, a form of administrative waiver. An FTPA cancels the penalty, meaning you don’t need to pay for it.
What to Consider
- The eligibility requirements for an FTPA are strict, meaning they are rarely granted. Applicants must not have received any penalties in the past 3 years and have either filed all required tax returns or a valid extension of time to file. For example, the IRS may not grant an FTPA if the taxpayer made a mistake or did not know the rules.
- Even if granted an FTPA, the IRS may still charge interest on the penalty.
5. Innocent Spouse Relief
While there are many benefits of filing taxes jointly, any possible debt or penalties that arise during a marriage will be the legal responsibility of both spouses, even if they later divorce. Innocent Spouse Relief can provide relief from taxes owed if a spouse or former spouse claimed improper deductions, reported income inaccurately, or failed to report income.
Example: If your spouse failed to report $5,000 in gambling winnings that you were not aware of, you may qualify for Innocent Spouse Relief. If you were aware of the gambling winnings but unaware of the failure to report, you may be entitled to partial relief.
What We Love
- Applying for Innocent Spouse Relief can help provide relief for a person who would otherwise be held liable for the fraudulent claims of another.
- Innocent Spouse relief can also benefit spouses knowledgeable about the income but not of the failure to claim to the IRS.
What to Consider
- You must establish that you did not know or understand that there was a fraudulent claim at the time you signed the joint return. This means there cannot be proof that you knew, or it would be likely that a reasonable person in a similar circumstance would have known of the fraudulent claim.
- Even if you did not file a joint return but live in a community property state, you may still qualify for relief from the operation of state community property. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
- If you or your spouse have recently transferred property to one another, or if you have significantly benefited from the fraudulent claims beyond normal spousal support, you will be held legally responsible for the taxes and fees even if it is a significant period after the earnings or fraudulent claims.
What is the Key IRS Fresh Start Qualification?
Although the IRS Fresh Start Program consists of five initiatives with unique rules and conditions, a Fresh Start applicant must meet the following qualifications to be eligible:
- Less than $50,000 of total outstanding debt and an inability to pay it off immediately (e.g., paying the debt would cause significant financial hardship)
- Single applicants earn less than $100,000 of yearly income
- Married applicants earn less than $200,000 of yearly income
- If the applicant is self-employed, they must also prove economic conditions caused a loss of income of 25% or more.
How to Apply for the IRS Fresh Start Program
Before applying to the IRS Fresh Start Program, make sure you qualify and that it is the proper debt relief program for you. To check if you qualify, read the form 656 booklet. This booklet outlines the qualifications for applying and how to apply.
If you qualify for the IRS Fresh Start Program, you will need to fill out a form 656 OIC. This form is for an offer in compromise and should be submitted with supporting documentation when applying for the IRS Fresh Start Program.
How to Apply for an Installment Agreement
If you want to apply for an installment agreement, it can be done through the IRS website.
Step #1
Confirm your eligibility for an online payment plan.
Step #2
Make an account with the IRS.
Step #3
Follow the instructions provided by entering the correct information.
How to Apply for an Offer in Compromise
The instructions to apply for an Offer in Compromise are listed on form 656-B.
Step #1
Send in all required forms listed in the instructions.
Step #2
Mail the application package with the forms and the application fee to the IRS.
How to Apply for a Currently Non-Collectible status
The IRS’s Taxpayer Advocate website recommends contacting the IRS for assistance with the CNC status.
Step #1
Contact the IRS using the appropriate phone number.
Step #2
The IRS may request you to complete Forms 433-A, 433-B, and 433-F, depending on the type of entity that is requesting CNC status.
Step #3
If you have past-due tax returns, file them as soon as possible.
Step #4
If you have submitted a Form 433-B, the IRS may request additional documentation to support the items in the Collection Information Statements section.
How to Apply for First-Time Penalty Abatement
You may either call the IRS using the agency’s toll-free number or submit Form 843. If you choose to send a Form 843, follow these steps:
Step #1
Complete all items on Form 843. In Section 5a, check ‘Reasonable cause or other reason allowed under the law.’
Step #2
Mail the form to the IRS at P.O. Box 120053 Covington, KY 41012 via the U.S. Postal Service.
How to Apply for Innocent Spouse Relief
Innocent spouse relief provides relief from taxes, penalties, or interest if one spouse inaccurately or falsely reported earnings on a joint tax return. It can be done on the IRS website or through mail.
Step #1
Confirm your eligibility by checking that you filed jointly or live in a community property state.
Step #2
Write a statement explaining why you qualify for relief.
Step #3
Fill out Form 8857 no later than 2 years after the date the IRS attempted to collect the taxes.
Step #4
Mail documents to the IRS at P.O. Box 120053 Covington, KY 41012 via the U.S. Postal Service.
Common Myths About the Program
With a name like Fresh Start Initiative, many myths have emerged based on interpretations of the title. Unfortunately, they are mostly false and result in misconceptions about the program.
Myth #1
All debt disappears. The debt obligation does not just disappear to give you a fresh start, as the name would suggest. Instead, you are qualifying for a specific payment plan.
Myth #2
Never pay the IRS again. You will still be paying the IRS for debt you’ve collected in the past and for any future income.
Myth #3
The program abates interest or penalties. This is entirely false. While some state programs may help with this issue, the Fresh Start Initiative does not provide relief for any accumulated interest or penalties.
How We Can Help
Taxpayers and businesses can receive help from an enrolled agent with the Fresh Start Initiative. A tax professional will guide you through the process so that you can benefit from the tax relief provided by the Fresh Start Initiative.
An enrolled agent benefits you by providing knowledge and experience in a topic you may not be familiar with. This experience can help to reduce the amount you pay each month, protect your rights, and, in special cases, reduce the amount you must pay.
FAQs
Here are the answers to some common questions about the Fresh Start Program from the IRS.
Yes, but be sure to research which tax relief programs you qualify for or consult a professional.
The IRS will settle around $14,577 for an offer in compromise.
Yes, the IRS Fesh Start Program is a legitimate initiative announced by the IRS.
Yes, but it is through a different program known as penalty abatement.
Yes, there is a statute of limitations of 10 years for IRS debt. After 10 years, the debt is forgiven, and the IRS writes it off.
To begin the IRS Fresh Start Program, you can get your taxes done with Tax Shark with the help of their back taxes service.
While the IRS Fresh Start Program does not explicitly reference veterans, the IRS has many other benefits exclusively for veterans.
No, the IRS does not report your tax debt to consumer credit bureaus, so any arrangement to pay back taxes will not harm your credit as long as you can pay your other bills on time.
