Your Definitive Guide to the IRS Fresh Start Program (2020)

Anna Kuehl
Expert Contributor
Last Updated:
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IRS tax debt can happen to anyone, no matter your age or income level. But if you’ve never had to address tax debt or back tax penalties before, you might not know how to deal with it while still paying your everyday bills and managing your family’s budget. Don’t worry, we’re going to show you a solution that can handle your tax debt and help you save at the same time.

If you’re wondering whether the IRS Fresh Start program can help you save on your tax debt, you’re in for a pleasant surprise. This initiative is designed to help taxpayers deal with back taxes and save pennies on the dollar. Find out what the IRS Fresh Start Program involves and learn whether you qualify for this money-saving initiative.

How Do I Apply for the IRS Tax Fresh Start Program?

The IRS has always offered taxpayers ways to pay their back taxes. However, these options haven’t always been clear or easy for taxpayers to navigate. The Fresh Start initiative is a complete suite of options with relatively clear-cut eligibility requirements and improved strategies for saving.

The IRS launched the Fresh Start initiative as a response to the 2008 recession. At the time, many taxpayers were struggling to address current and back tax payments without going bankrupt. The agency introduced this program as a way to offer a clean slate to taxpayers who were behind on tax payments and who were at risk of adverse actions like tax liens and levies.

Your Definitive Guide to the IRS Fresh Start Program (2020)

After its initial launch in 2009, the IRS continued to make updates to the program in 2012 so more taxpayers would be eligible to take advantage of the initiative’s benefits. Today, millions of taxpayers may qualify to participate in this program to resolve debt and avoid bankruptcy. Both individuals and businesses can benefit from the initiative.

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According to the Treasury Inspector General for Tax Administration, the Fresh Start initiative has already been a tremendous help to hundreds of thousands of taxpayers. Between 2010 and 2013, the IRS issued almost 200,000 fewer tax liens. That means the number of tax liens was reduced by more than half within the first five years of the Fresh Start program’s introduction.

Although the Fresh Start initiative isn’t a program that you can apply for, it does have specific eligibility requirements that you have to meet before you can take advantage of the IRS rule changes for tax debt. To qualify for Fresh Start, you have to do the following:

  • File all outstanding tax returns
  • Make payments as agreed by you and the IRS
  • Provide your complete financial information if requested

If you are eligible for the Fresh Start initiative, you can get help with one of three key tax issues:

  • Evaluating offers in compromise: If you’re unable to pay your tax debt, based on your income and liabilities, you may have another option. The Fresh Start program allows taxpayers to negotiate offers that let you settle your debt for less than what you owe.
  • Enrolling in installment payments: If you have a large tax debt, paying it all at once might be impossible. The Fresh Start initiative makes it possible to pay smaller amounts over a longer period of time without getting penalized.
  • Eliminating tax liens: If you have received multiple notices from the IRS, the agency may have placed a lien on your assets in its attempt to collect debts. The Fresh Start program can help you remove tax liens while dealing with the back taxes you owe.

How a Tax Relief Company Can Help You With the IRS Fresh Start Program

Even though the IRS Fresh Start initiative offers a more straightforward way for taxpayers to address back taxes, it isn’t always easy to navigate the program on your own. The eligibility requirements for each option can be complex, and communicating with the IRS can be frustrating. If the IRS requests additional information or financial data, it can be impossible to know whether you’re providing the right documents or making the situation worse.

In most cases, it’s best to get a tax relief company to help you with the IRS Fresh Start program. A knowledgeable tax relief company can review your situation, advise you about the best options, and walk you through the entire process. Here’s how a tax relief company can work with you:

  • Enroll in the correct program: An experienced tax relief company has a complete understanding of the Fresh Start requirements and can quickly assess which option is ideal for your individual situation. A tax relief firm can also guide you through requesting enrollment in the appropriate program.
  • Make a convincing case: When the IRS requests personal information or financial statements to support your request, a tax relief company can make an accurate and convincing case for you. In many cases, tax relief companies can communicate with the IRS on your behalf, which can reduce your stress levels. Most tax relief companies also employ tax attorneys who can represent you in court if necessary or help you handle serious situations like IRS passport revocation.
  • Save as much as possible: If you request an offer in compromise, a tax relief company can ensure that you only pay what you’re able to afford. Ultimately, this strategy can allow you to save as much as possible on your tax debt and pay less than what you owe.

When you’re looking for a tax relief company to help you with the Fresh Start initiative, don’t limit yourself to local firms. A tax relief company in your area might be convenient to visit in person, but proximity doesn’t necessarily equal great results.

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Instead, consider working with a top-rated tax relief company that has extensive experience with the IRS Fresh Start program. Many highly rated firms can work with you remotely, handling your case while providing assistance via email, phone, or video chat. To select the best possible firm to help with your tax debt, look for a company with the following qualifications:

  • High Solvable ratings: We rate tax relief firms on a scale of one to 10. We consider opinions from tax professionals and feedback from past customers when we determine a rating.
  • Great customer reviews: Customer ratings can provide invaluable information about how effective tax relief firms are and how easy they are to work with. Browse our customer reviews to learn more about any company you’re considering.
  • Excellent Better Business Bureau ratings: When the BBB rates companies, it takes into account the firm’s size, industry, history, and customer reports. It also considers the company’s advertising practices and history of resolving customer issues to generate an unbiased third-party rating.

Offer in Compromise Under the IRS Fresh Start Program

For most taxpayers, an Offer in Compromise is considered a last resort. However, an Offer in Compromise is also one of the most effective ways to save money, because it lets you settle your outstanding debt for less than what you owe the IRS.

Under the Fresh Start initiative, the IRS has more flexibility when determining your eligibility and evaluates your collection potential much more favorably. Before Fresh Start, the agency multiplied your monthly discretionary income by 60, or five years, when calculating how much it could collect from you. Now, the IRS multiplies your income by just 12 or 24, which means you can usually settle your IRS tax debt for much less.

In addition, the IRS made substantial changes to its definition of discretionary income under the Fresh Start initiative. Now, the agency considers essential expenses like state tax debt and student loans when calculating discretionary income.

When the IRS considers your Offer in Compromise, it reviews your ability to pay what you owe, your current income, the assets you own, and your expenses and debts. If the IRS believes that the amount you suggest via an Offer in Compromise is equal to what the agency can expect to collect over the course of the upcoming months or years, it may approve your offer.

Before you submit an Offer in Compromise, do the following:

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  • File all outstanding tax returns unless the IRS has granted you an extension.
  • Pay any estimated tax payments.
  • Confirm that you aren’t involved in an ongoing bankruptcy case, which disqualifies you from requesting an Offer in Compromise.
  • Use our Offer in Compromise Calculator to make sure you’re eligible.

To make an Offer in Compromise, you’ll need to submit the following, often with the help of a tax relief firm:

When you make an Offer in Compromise, you’ll also need to select a payment option. The IRS offers two choices:

  • Lump Sum: Pay 20% of your total offer up front, and pay the rest of the balance in five or fewer payments.
  • Periodic Payment: Pay an initial balance up front, and pay the rest of the balance each month.

After submitting an Offer in Compromise, you’ll have to wait for a response from the IRS. While you wait, you should continue to make the payments you outlined in your offer. While the IRS considers your offer, it’s important to know that the agency may file a tax lien but will pause other collection actions. If you don’t receive a response from the IRS within two years, the agency automatically accepts your Offer in Compromise automatically.

Installment Payments Under the IRS Tax Fresh Start Program

When you owe the IRS tens of thousands of dollars, you might not be able to pay it off in a lump sum. With installment payments, you can negotiate an agreement to pay smaller amounts periodically over a longer period of time, whether you owe individual or business taxes.

Like the helpful changes to the Offer in Compromise option, the Fresh Start initiative also introduced more beneficial terms for installment payments. Before Fresh Start, only taxpayers who owed $25,000 or less in tax debt could qualify for installment payments. Since the 2012 tax law change, you can owe up to $50,000 and still be eligible for this option.

Under the Fresh Start program, you can also negotiate an agreement that allows you up to six years to pay off your tax debt. This extension means you can have a much more reasonable amount of time to address your debts to the IRS. This program update also means you can submit smaller minimum payments each month, which can help you maintain a monthly budget that works for you.

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Before you apply for an installment payment plan, make sure you’re eligible. You could qualify for a long-term installment agreement if you owe under $50,000 in back taxes, penalties, and accrued interest and if you’ve filed all outstanding tax returns. You could be eligible for a short-term payment plan if your back tax debt is less than $100,000.

To apply for the IRS’s installment payment plan, you need the following:

  • Your name and address as they show on your most recent tax return
  • Your date of birth
  • Your Social Security number or your Individual Tax ID Number
  • Your filing status
  • A current email address
  • A bank account number, a mobile phone in your name, or an IRS activation code so the IRS can verify your identity
  • A valid checking account so the IRS can debit your account every month

To request an installment agreement, submit IRS Form 9465 or use the online payment agreement application to apply as an individual or a business. Once you begin an installment payment plan, you have to submit the monthly payment and any penalties or interest your debt accrues until you pay off the balance. You may also need to pay a setup fee. While the IRS doesn’t charge a setup fee for short-term payment plans, you have to pay a $31 setup fee for a long-term plan with automatic withdrawals or a $149 setup fee for a long-term plan without direct debit.

IRS Tax Lien Withdrawal Under the Fresh Start Program

If you neglect to pay taxes, the IRS has several options to collect your debt. First, the agency mails you a bill that specifies what you owe. In most cases, you will receive more than one notice that you have a balance due. If you don’t pay the balance by the due date, the IRS can file a Notice of Federal Tax Lien. This public document confirms that the IRS has claimed a right to your assets.

In the past, the IRS could place a tax lien on your assets even if you had a relatively small debt. Under the Fresh Start initiative, the IRS can file a lien notice only if you owe $10,000 or more in tax debt. That means you can avoid a tax lien if you owe the IRS $9,999 or less.

The Fresh Start program also introduced a way to avoid a federal tax lien even if you owe $10,000 or more. If you set up a streamlined payment plan with the IRS, the agency won’t file a lien. That means you can agree to an installment payment plan to pay off up to $50,000 in debt without worrying that the IRS will place a lien on your property or belongings.

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If the IRS has already filed a tax lien, you can have it eliminated if you have filed all applicable tax returns for the past three years and if you have submitted all tax payments. If you don’t meet these requirements, however, you can pursue another option for having the tax lien withdrawn, thanks to the Fresh Start initiative. Under this program, you can apply to have a tax lien removed if you meet the following requirements:

  • You owe less than $25,000 in tax debt.
  • You agree to an installment plan that repays your full balance in 60 months via direct debit.
  • You apply for a tax lien withdrawal after making at least three installment payments.
  • You haven’t stopped paying or defaulted on another direct debit installment payment plan.
  • You have filed all outstanding tax returns and made estimated payments.

In most cases, it’s worth submitting IRS Form 12277 to eliminate your tax lien. Having a tax lien from the IRS can have several negative effects, including allowing the IRS to claim all of your current and future assets acquired during the lien, limiting your ability to apply for credit, preventing you from selling your home, and remaining in place even if you end up filing for bankruptcy. Applying to withdraw your tax lien can help you avoid all of these drawbacks.

IRS Tax Levy Removal Under the Fresh Start Program

To collect tax debt, the IRS can place a tax levy on your property. Unlike a tax lien, a tax levy means that the IRS claims complete ownership over your assets to pay the balance of your debt. Since the IRS can place a tax levy on anything from your home and your car to your bank account, this is one of the most serious outcomes of having tax debt.

Some Fresh Start options, such as installment agreements, can impact the tax levy removal process. Call the IRS to get your tax levy released if one of the following situations applies to you:

  • You paid in full: If you paid the balance of your tax debt, the IRS is required to release its levy.
  • The collection period ended: In most cases, the IRS has 10 years to collect tax debt. If this period ended before the IRS issued the levy, the agency has to release it.
  • The levy is preventing you from paying your taxes: Sometimes you may need to sell an asset in order to pay your tax debt. In this case, the IRS has to release the levy so you can complete the sale and pay your balance.
  • You start an incompatible installment agreement: Some IRS payment plans may require you to dispose of certain assets so you can afford the payments. The IRS is required to release the levy so you can carry out the agreement.
  • You can prove economic hardship: In many cases, a tax levy can cause serious problems for your finances. If you can prove that the levy has caused a major hardship, the IRS has to release it.

You also have an opportunity to avoid a tax lien by submitting an appeal. When you receive a levy notice from the IRS, you have 30 days to make a formal appeal. Submit IRS Form 9423 to appeal the tax levy and force the IRS to reconsider its decision.

Wage Garnishments Removal Under the IRS Fresh Start Program

In addition to placing tax liens and tax levies on your property, the IRS can collect tax debts directly from your paycheck. Also known as wage garnishment, this process allows the IRS to collect from your paycheck without getting a judgment first, unlike other creditors.

While most creditors can garnish only limited amounts from your paycheck, the IRS follows the federal tax code when determining how much to take. Essentially, the tax code calculates the amount you need for basic living expenses, based on the number of exemptions you claim. That means the IRS can take the rest of your paycheck, leaving you with enough to cover just everyday expenses.

Fortunately, like most of its other collection options, the IRS won’t start taking money from your paycheck right away. First, you’ll receive a notice that shows what you owe and the due date. If you don’t pay the balance, you’ll receive a final notice indicating that the IRS will begin garnishing your wages. To stop IRS wage garnishment, you can take advantage of Fresh Start initiatives and other options:

  • Make an Offer in Compromise: To avoid or stop wage garnishment, you can make an offer in compromise that settles your debt for less than your balance with the IRS.
  • Start an Installment Agreement: If you don’t qualify for an Offer in Compromise, you can propose an installment agreement that allows you to pay off your balance over time.
  • Prove Financial Hardship: If wage garnishment is causing serious distress, you can call the IRS to discuss your financial hardship and explore other options.

Penalty Abatement Under the IRS Fresh Start Program

Tax debt doesn’t always come from past-due taxes alone. If the IRS has penalized you for mistakes or missed deadlines, these fees can increase the total balance you owe. In some cases, penalties can accrue, causing your balance to grow continually.

As you pursue the right Fresh Start program option for you, take the time to find out if you qualify for penalty abatement. If you’re eligible, you can reduce the total amount you owe to the IRS. That means you can save money and tackle your tax debt faster.

While the IRS won’t waive all penalties, it can eliminate certain types. Eligible penalties include:

  • Failure to file tax returns by the deadline
  • Failure to pay taxes on time
  • Failure to deposit required taxes

If the IRS charged you one of the eligible penalty types, you may qualify for penalty relief. The IRS offers three types of penalty relief:

  • First-Time Penalty Abatement: If you have filed all outstanding tax returns, paid or arranged to pay the taxes you owe, and haven’t generated penalties for the previous three tax years, you could be eligible for first-time penalty abatement. To find out if you qualify, call the phone number on the IRS notice you received.
  • Reasonable Cause: If extenuating circumstances like fire, natural disaster, death, major illness, or an unavoidable absence kept you from filing your tax returns or paying your taxes on time, you could qualify for penalty relief. When requesting this type of penalty relief, use the phone number on your notice to contact the IRS, and be prepared to provide facts about your circumstances and how they prevented you from filing or paying on time. You may also need to provide documentation of natural disasters or hospital and court records.
  • Statutory Exception: If the IRS provided you with incorrect or inaccurate written advice that caused a penalty, you could qualify for a statutory exception. You’ll need to submit IRS Form 843, a copy of your written request for advice, a copy of the incorrect advice from the IRS, and a copy of the notice that confirms your penalty to request this type of relief.

In some cases, the IRS won’t grant your first penalty relief request, but that doesn’t mean you have to give up. Instead, you can make a follow-up request using the IRS’s online penalty appeal tool.

If you’re struggling to pay outstanding tax debt, the Fresh Start initiative can help you get back on your feet. Whether you qualify for Fresh Start options like an installment payment plan, a tax lien withdrawal, or an Offer in Compromise, or this program can help you deal with debt effectively while also resolving issues like stopping wage garnishment and removing tax levies. Find an experienced tax relief company and start handling your IRS tax debt today.

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Anna Kuehl
Expert Contributor
Last Updated:

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