As a part of the IRS Fresh Start Initiative, individuals owing up to $50,000 often qualify for a streamlined installment agreement, which can be secured with minimal financial information and can have a repayment term of up to 72 months. For businesses owing up to $25,000, there is a similar program called the in-business trust fund express installment agreement, which grants a repayment term of up to 24 months with minimal financial disclosure. Note that neither of these programs provide any relief from penalties or interest, though penalty reductions may be available through a separate process.
You have probably heard one of the many radio or TV ads that gushes about the IRS tax debt relief program called “The IRS Fresh Start Initiative” and how it can result in a “pennies on the dollar” tax settlement.
You’ve probably wondered: is this for real? Is it really as simple as calling this 800 number, hiring some kind of tax pro, and, voila, your tax liability gets settled for a tiny fraction of what you or your business owes? The truth of the matter is that certain taxpayers and businesses do, in fact, qualify for a screaming-deal tax settlement. However, most do not, so don’t be fooled by the hype.
This is not to say that many indebted taxpayers cannot benefit in some way from the Fresh Start Initiative. That is because the Fresh Start Initiative encompasses a host of different ways aside from tax settlements (aka Offers in Compromise or OIC for short) that make it easier for taxpayers to resolve their tax liabilities. Let me break it down for you and show you how you may be able to come out ahead.
The IRS has a complex and lengthy set of rules and policies that govern the way that indebted taxpayers and the IRS resolve tax liabilities. If you are an individual who owes $50,000 or less or a business who owes $25,000 or less, and you meet certain criteria, there is a relatively straightforward process for setting up an installment agreement (note that some of these same businesses or individuals could qualify for an OIC, which, although not simple, could result in substantial savings and may be a far better alternative than an installment agreement).
If you or your business owes more than those amounts or if you don’t meet basic eligibility criteria or if you want settle for less via an OIC, things get very murky, very fast. If you think that the process of reaching an agreement with the IRS is going to be easy, you’re very likely in for a rude awakening. Aside from the streamlined installment agreement and the in-business trust fund express installment agreement discussed above, you will need to brace yourself for a lengthy process that will likely involve a ton of financial information, deadlines and demands, severe consequences for failing to meet deadlines and demands, and a significant risk that the IRS will require crushing monthly payments that make it difficult or impossible for you or your business to make ends meet.
Four Key Components to the Fresh Start Initiative
For the lucky few taxpayers to whom the Fresh Start Initiative applies, the following summarizes some of the key parts of the Fresh Start Initiative:
- The IRS increased the tax debt threshold from $5,000 to $10,000 before it files a Notice of Federal Tax Lien. However, in certain cases, the IRS may file the Notice of Federal Tax Lien even if you owe less than $10,000.
- You may request the IRS to withdraw a Notice of Federal Tax Lien if you (a) owe less than $25,000 for an individual tax debt, (b) agree to pay the IRS every month for 60 months directly from your bank account or wages (aka a direct-debit installment agreement), and (c) pay for three consecutive months under the direct-debit installment agreement.
- For lump sum OICs (an offer to settle the tax debt with a “lump sum” payable within 5 months), the IRS will only look at one year of future income instead of the normal four years. For short-term periodic OICs (an offer to pay the settlement amount in installments within 6 —24 months), the IRS will only look at two years of future income instead of the normal five years. This opens the door to significantly lower settlement amounts for some taxpayers than those that were available previously.
- The IRS decreased the document requirements if you owe $10,000 or less and attempt to claim a currently not collectible A currently not collectible status means you are unable to pay, as determined according to complex IRS rules and policies; thus, the IRS temporarily stops attempting to collect the tax debt you owe.
While it is true that the Fresh Start Initiative made it a little easier for certain indebted taxpayers to reach better terms with the IRS than they otherwise would have, the reality is that the Fresh Start Initiative is really nothing more than a handful of changes to a vast and complex set of rules and policies that were already in place well before the IRS announced its Fresh Start Initiative back in 2012. The advertisers who imply that the Fresh Start Initiative is a monumental change that will enable indebted taxpayers to turn their tax debts into pennies-on-the-dollar settlements with a phone call to an 800 number are, in large part, being disingenuous.
As it was prior to the implementation of the IRS Fresh Start Initiative, indebted taxpayers still must weed through the IRS’s vast and complex rules and polices so that they can try to determine which tax resolution strategy will work best for them. Just because a taxpayer qualifies for something included in the Fresh Start Initiative does not mean that particular “something” is the best way to resolve that taxpayer’s tax debt. Assuming they manage to decipher the best strategy for their unique circumstances, they still must go about implementing that strategy. This is a daunting task given the average taxpayer’s lack of knowledge and experience in resolving back tax debts. Powerful IRS collection officers who are often aggressive and uncooperative don’t make it any easier.
Bottom Line…Talk To a Tax Attorney To Guide You Through The Process
If you have a serious tax liability, your best bet remains consulting with an ethical and experienced tax resolution professional—one with significant experience resolving back tax issues (hint: few accountants have much experience in this area). A good tax resolution professional can help you identify the best strategy for resolving your tax debt and give you the best chance of actually implementing that strategy.
Fortress has knowledgeable and compassionate professionals who would be happy to talk things through with you at no charge. All you have to do is contact us.