After the financial crash of 2007 the IRS had a big problem – millions of Americans had lost their jobs and owed huge amounts of tax but had no way of paying it back. Under its existing policies, it had no choice but to punish people who had no way at all of paying their tax debts. You can flog a dead horse all you like but it will never get up! This is why the IRS Fresh Start initiative was instituted – it allowed the IRS a means of giving taxpayers a fresh start without being too brutal and thereby allow people to get back on their feet again.
Let’s look at the Fresh Start Program and see what it involves.
Bureaucracy baffles brains
Let’s get this out of the way – the Fresh Start program can be a bureaucratic and legal minefield. According to the financial advice website Super Money, “If you feel confident in your ability to negotiate and in your knowledge of tax law, you can take advantage of the Fresh Start Initiative on your own. However, if you are uncertain about your capacity, a tax professional can help you to get the best result – and to avoid making your debt situation worse.”
This means in most cases you should come to Defense Tax to help you onto the Fresh Start program. We can give you the best advice as to how to enroll on it and what the best route to use through the system. Our team will then guide you through the Fresh Start system until you are tax debt free and moving into the next phase of your life.
What is the IRS Fresh Start initiative?
As indicated above, the Fresh Start program can involve a variety of routes to tackle your tax debt. You can prevent or stop a tax lien on your property so you can get credit, arrange installments to repay your debt or get an IRS Offer In Compromise.
Here are a few punitive measures softened:
- A tax lien is nasty. It is a marker on your credit record declaring you are in default of tax and stop you from getting credit. Under the Fresh Start program, these can usually be lifted once you have proven you cannot immediately pay the debt and have started repayments against that debt through one of the two processes below.
- If you are in default with the IRS you could end up with 40% interest on the original sum. As with tax liens this interest can be removed under the Fresh Start initiative.
- New debts can be considered as allowable expenses such as student loans.
It is easier to repay your debt under Fresh Start:
- Installment agreement. If you owe the IRS less than $50,000 you can usually repay the tax debt over unto 72 months in installments without providing a detailed financial statement. It is estimated that the IRS has now agreed nearly 800,000 of these installment agreements.
- Offer in Compromise. Under the Fresh Start program, the IRS has widened the scope of those allowed to undertake an IRS offer in compromise.
None of these are simple and you really should get advice and support before you take steps to go through the Fresh Start system.
Qualifying for Fresh Start
- To qualify for Fresh Start you need to be completely honest with the IRS. The first thing you should do is file all of your tax returns for previous years, regardless of whether you can afford to make payments against them.
- You cannot be in live bankruptcy proceedings at the time – other laws and processes apply to bankrupts.
- You have to put a statement together to prove beyond doubt that you cannot pay your IRS tax debt.
- If you are a business owner or self-employed you may need to do other things – speak to us at Defense Tax about that.
Installment agreements are the commonest type of agreement that you end up in with the IRS. You can end up paying less than the original sum thanks to the statute of limitations on the amount of time the IRS is allowed to collect your debt. This is another reason you should get good tax debt advice from Defense Tax.
There are five types of installment agreements under Fresh Start:
- The Guaranteed installment agreement allows you to clear a $10,000 tax debt in three years or fewer.
- If you owe $50,000 or less then you can pay this within five years
- Under a Partial Installment Agreement, you can agree to repay your tax debt until the statute of limitations prevents the IRS from collecting any more money from you.
- If you are a business you can agree to repay up to $25,000 in less than two years
- If you owe more than $50,000 you can negotiate a repayment plan under the Fresh Start initiative. Speak to us about that.
When these agreements are reached with the IRS, interest and tax liens can be removed. This is why it pays to move quickly when in trouble with the taxman!
Offer in Compromise
An offer in compromise is where you will agree to pay a lower sum to the IRS than you originally owed. Under the Fresh Start program, this has been simplified so you have a lower threshold to qualify for an offer in compromise than you did before 2008 when the initiative was introduced. Getting an offer in compromise isn’t easy and really shouldn’t be something you do alone. Have a look at the article we have written on offer in compromises and then speak to us to discuss entering into one with the IRS.
Call Defense Tax today!
The Fresh Start initiative was put in place to help people who cannot pay their tax debts yet really shouldn’t be punished for it. Being a government initiative it still isn’t simple and you cannot for example phone a ‘Fresh Start helpline’ to start the process! Instead, you should get in touch with tax debt advisors like us at Defense Tax and we will guide you through the different channels toward reaching an agreement with the IRS to repay your tax debt. Call us today to discuss your issues!