A new year could mean a financial fresh start. The IRS Fresh Start Program, launched in 2011, is a collection of relief tools, from installment agreements, Offers in Compromise (OIC), lien withdrawal, penalty relief, and more. It was designed to help taxpayers and small businesses regain control of their finances. Rather than being a single procedure, it’s a collection: from easier monthly payments to potentially settling your debts. The IRS created it to reduce aggressive collection actions like levies, garnishments, liens, and asset seizures while ensuring taxpayers pay what they can.
The History of the Fresh Start Program
The Fresh Start Initiative was established in 2011 to give first-time tax offenders leniency and the opportunity to solve their tax issues through consolidated tax bills and payment arrangements. Shortly after launching the program, the IRS made it easier to remove federal tax liens. It also allowed taxpayers to come to more favorable payment arrangements with the IRS. One year after that, the IRS gave more taxpayers access to the Offer in Compromise (OIC) program.
The Fresh Start Initiative can help stave off IRS collection activities that include:
- Bank Levy: The IRS can seize funds from your bank accounts.
- Wage Garnishment: A portion of your wages can be deducted and sent directly to the IRS.
- Seizure of Assets: The IRS may seize personal property, such as a car or home, to satisfy the tax debt.
- Hiring Private Collection Agencies: Assigning the debt to authorized private agencies to pursue payment.
- Filing Lawsuits: Taking legal action to recover the owed amount through court proceedings.
- Seizing Tax Refunds: Offsetting unpaid taxes with federal or state tax refunds owed to the taxpayer.
- Federal Tax Lien: Filing a legal claim against the taxpayer’s property to secure the debt, making it difficult to sell or refinance assets.
All this said, many taxpayers ask, “How much does the IRS Fresh Start Program cost?” It’s important to understand that the IRS Fresh Start Program itself does not have a specific cost, as it is not a single program but rather a collection of tax relief options offered directly by the IRS. However, there may be fees associated with the specific components of the program, as well as potential costs if you hire a tax professional to assist with the application process.
Eligibility Requirements for the IRS Fresh Start Initiative
To qualify, taxpayers must meet specific eligibility requirements depending on the program they apply for, such as installment agreements, Offer in Compromise (OIC), penalty abatement, or lien withdrawal. Below are detailed eligibility criteria for the initiative’s primary components.
Streamlined Installment Agreements
- Debt limit: $50,000 or less (including penalties and interest)
- Term: Up to 72 months (6 years), typically with no detailed financial disclosure
- Process:
- File all tax returns.
- Request via Form 9465.
- If debt exceeds $50K, pay it down or submit Form 433-A/B for a partial payment plan
- Pros: Avoid liens, small monthly payments, flexible repayments.
- Cons: Interest and penalties continue; missing payments may re-trigger collection
Offer in Compromise (OIC)
Debt condition: Pay less than full debt if full repayment causes financial hardship.
- Eligibility criteria:
- Filed all tax returns.
- Owe at least one assessed tax debt.
- Demonstrate limited income/assets vs. debt
- Application process:
- Provide financial disclosures via Form 433-A (OIC).
- Submit Form 656, covering a non-refundable application fee and deposit.
- IRS calculates the Reasonable Collection Potential (RCP).
- Advantages: Potential 10‑20% settlements
- Drawbacks: Extensive documentation, long processing (months), and all future taxes must be current
Penalty Abatement Options
First-Time Penalty Abatement (FTA):
- No penalties (except estimated taxes) in the prior three tax years.
- Filed all required tax returns.
- Paid or arranged to pay all tax due.
- Currently compliant with IRS filing and payment obligations.
Reasonable Cause Penalty Relief:
- Experienced qualifying hardship (e.g., natural disaster, medical emergency, death, etc.).
- Acted in good faith and attempted to comply with tax obligations.
- Filed all required returns and either paid the tax or entered into a valid payment plan.
IRS Tax Lien Withdrawal
- Debt cap: $25,000 or less.
- Conditions:
- Enter a Direct Debit Installment Agreement.
- Make three consecutive, timely payments.
- Up to date on tax filings
- No active bankruptcy proceedings
- Submit Form 12277
- Benefit: Removes liens, protects credit, and improves asset liquidity.
Currently Not Collectible (CNC) Hardship Status
- Purpose: Temporarily halt collection if payments would prevent meeting basic living needs.
- Requirements:
- Demonstrate income far below expenses.
- File Form 433-A/B, showing hardship
- Outcome: Collection stops, but penalties and interest continue to accrue.
Fresh Start and Extended Installment Agreements
Extended installment agreements offer taxpayers a manageable solution for resolving significant tax debts. Here are some key features and considerations for these arrangements.
Eligibility Requirements
To qualify, taxpayers generally need to meet these conditions:
- Owe more than $50,000 or be unable to pay the debt within the standard 72-month repayment period.
- Have filed all required tax returns and remain compliant with current tax obligations.
Extended Payment Period
The IRS may extend repayment terms beyond the usual 72 months, depending on your financial circumstances. Monthly payment amounts are determined by evaluating your income, expenses, and assets to ensure they align with your ability to pay.
Financial Disclosure
Taxpayers must complete Form 433-A (Collection Information Statement for individuals) or Form 433-B (for businesses). The IRS uses this financial snapshot to calculate a feasible monthly payment and assess your eligibility for extended terms.
Securing the Debt
For significant balances or extended repayment periods, the IRS may file a Notice of Federal Tax Lien to protect its interest in your assets. This tax lien could affect your ability to obtain credit but ensures the IRS’s claim is prioritized.
Costs and Fees
Setting up an installment agreement incurs a fee, though low-income taxpayers may qualify for reduced rates. Keep in mind that interest and late payment penalties continue to accrue until the full balance is paid.
Automatic Payment Options
Direct Debit Installment Agreements (DDIA) allow payments to be automatically deducted, reducing the risk of default and ensuring compliance. This option often simplifies the process for both parties.
Default Risk
Failure to make payments or stay current with other tax obligations can lead to the termination of the agreement. If default occurs, the IRS may resume aggressive collection actions, including wage garnishments or bank levies.
Duration and Review
Installment agreements are subject to periodic review. The IRS may request updated financial information to reassess your ability to pay, ensuring the agreement remains fair and sustainable. These extended installment plans provide a pathway for taxpayers to regain financial stability while addressing their tax liabilities.
Six-Month Extension for the Unemployed
The IRS offers a six-month extension for certain individuals who face challenges in filing their taxes, including unemployment benefits received during the year. These extensions can alleviate penalties, providing additional time to organize finances and file taxes correctly.
- Eligibility: Unemployed individuals receiving unemployment benefits may qualify for an extension.
- Penalty Relief: The extension helps avoid penalties for late filing, offering more time to submit accurate returns.
- Automatic Approval: The six-month extension is typically automatic for those who file Form 4868.
- Extended Deadline: Taxpayers can file their returns by October 15, instead of the usual April deadline.
- Unemployment Benefits: Unemployment benefits are taxable, and the extension provides more time to address these taxable amounts.
It’s important to understand eligibility and ensure that the extension is properly applied to avoid penalties. For help, consider consulting with a knowledgeable tax professional.
Is the IRS Fresh Start Program Legitimate?
The IRS Fresh Start Program is a legitimate initiative introduced by the IRS to help individuals and businesses struggling with tax debt. Launched in 2011 and expanded over the years, the program provides a variety of options designed to make it easier for taxpayers to pay off their debts, avoid penalties, and stay compliant with their tax obligations. The program aims to prevent financial hardship while ensuring the IRS can still collect what is owed.
Why Some Doubt Its Legitimacy
The legitimacy of the IRS Fresh Start Program is sometimes questioned due to misinformation and misleading marketing from third-party tax relief companies. These companies often exaggerate the benefits or misrepresent the qualifications for the program to sell their services. It’s important to note that the Fresh Start Program is an official IRS initiative, and taxpayers can access its benefits directly through the IRS with or without paying a third party.
How to Verify and Apply
Taxpayers can verify the program’s legitimacy by visiting the official IRS website or consulting with a licensed tax professional.
- File all back returns immediately.
- Determine the best relief:
- Owe $50,000 or more? Installment agreement likely.
- Significant hardship? Consider OIC or CNC.
- Penalties? FTA or reasonable cause relief.
- Liens? DDIA + Form 12277.
- Gather documentation: income proofs, bank accounts, living expenses.
- Complete forms: 9465 / 433-A/B, 656, 433-A (OIC), 12277
- Submit directly via IRS or enlist help from a licensed tax pro.
- Monitor payments and file future taxes on time.
- Request reviews (especially for CNC status) if your situation changes.
Frequently Asked Questions
Who qualifies for the IRS Fresh Start Program?
Individuals or businesses who owe less than $50,000, have filed all required tax returns, and are compliant with current tax obligations. Those facing financial hardship may qualify for expanded relief options like Offer in Compromise or Currently Not Collectible status.
How does the IRS Fresh Start Program work?
It offers payment plans, settlement options, penalty relief, and lien withdrawals to help taxpayers resolve tax debt more affordably. Each relief type has its own requirements and application process.
Can I settle my tax debt for less than I owe?
Yes, through an Offer in Compromise (OIC), but only if you can prove that full payment would cause financial hardship. Eligibility is based on income, expenses, assets, and IRS approval.
Is there a fee to apply for the Fresh Start Program?
There’s no fee for the program itself, but some relief options include IRS application fees (e.g., OIC is $205) and potential fees for hiring a tax professional. Low-income taxpayers may qualify for waived fees.
Will the IRS stop collections during Fresh Start?
Yes, if you’re approved for an OIC, installment agreement, or hardship status (Currently Not Collectible), most collection actions (like wage garnishments or bank levies) pause or stop.
Can small businesses apply for Fresh Start relief?
Yes. Small businesses that owe back taxes and are current with filings may qualify for installment plans, penalty relief, or OIC. Payroll tax debt may require separate compliance steps.
What happens if I miss a payment?
Missing a payment can lead to default, causing penalties, reinstated collection actions, or canceled agreements. Direct debit is recommended to avoid missed payments.
Tax Help for Those Who Owe
The Fresh Start program can really help taxpayers who owe the IRS but don’t necessarily have the funds to pay their debt. Working with an experienced tax relief company can help ease the process. If you are wondering if you are eligible for the Fresh Start program, we can help. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
If You Need Tax Help, Contact Us Today for a Free Consultation