IRS Fresh Start Program Overview
Updated October 31st, 2022, by Charlie Corsello
IRS Fresh Start Initiative: What Is It? Is It Real?
The initiative is an extension of the IRS Restructuring and Reform Act of 1998. Launched in 2011, the Fresh Start Initiative (FSI) was designed to give delinquent taxpayers a “fresh start” on their taxes owed. Over the years, the initiative progressed with incremental changes to IRS collection procedures. The changes contain different elements that make it easier for taxpayers to get into federal tax compliance and resolve IRS taxes owed. More importantly, the changes helped more taxpayers avoid federal tax liens and get them withdrawn. In recent years, the IRS has made this program even more enticing. The changes are real and IRS forgiveness is a possibility for more taxpayers.
What Is the IRS Fresh Start Program?
The IRS Fresh Start Program is a collection of tax debt relief programs rolled out by the IRS in 2011. The IRS created this program to help taxpayers get out of tax debt and have a fresh start. In particular, the program made it easier to settle your tax debt through an offer in compromise.
Is The Fresh Start Initiative Legitimate?
Yes, the IRS Fresh Start Program is legitimate. The IRS created this initiative to help taxpayers get a fresh start. However, you don't apply to the IRS Fresh Start Program. There is no IRS form that says "Fresh Start Program." Instead, if you have tax debt, you can apply for a payment plan, an offer in compromise, or any of the IRS's other tax debt relief programs. The Fresh Start Initiative simply expanded the eligibility criteria for some of these programs.
So, why are people still talking about the Fresh Start Program if it's more than a decade old? Because big tax relief firms use this program as a marketing hook. They put ads on the radio, TV, internet, and even print media that talk about the Fresh Start Program. Then, when people with outstanding tax debt hear these ads, they search for IRS Fresh Start Program online, and they get results from websites selling tax debt relief services.
You can find a little bit of information about the Fresh Start Initiative on the IRS's website, but not much. Again, this program was rolled out more than 12 years ago so, at this point, the IRS isn't even really talking about it anymore. It's old news. If you call the IRS directly and ask about the Fresh Start Program, the IRS agent will likely tell you that it was a bunch of changes made to collection processes and the offer-in-compromise program years ago. And since those changes, the IRS has rolled out even better updates.
Who Qualifies for the IRS Fresh Start Program?
The Fresh Start qualification rules vary based on the tax relief program. For example, if you apply for an installment agreement, the eligibility criteria are different than if you apply for an offer in compromise. To find out if you qualify, reach out to a local tax pro. They can look at your tax debt and financial situation and help you identify the best program for your situation.
What Relief Did the IRS Fresh Start Initiative Provide?
The IRS Fresh Start Program offered penalty relief for taxpayers in 2011. It also made it easier to set up installment plans or get offers in compromise on tax debt. In particular, the Fresh Start Program allowed people with less than $50,000 to set up streamlined installment agreements to make monthly payments on their tax debt. It also reduced the amount of income that the IRS takes into account if you apply for an offer in compromise to settle your tax debt for less than you owe.
Here are the changes created through the IRS Fresh Start Program. Keep reading for more detailed discussions about these changes below.
- New Rules for Tax Liens
- Loosened the rules to Get Tax Liens Withdrawn
- Changed the qualifications for certain Installment Agreements to ease the process (Monthly Payment Plans)
- Easier to Set up Installment Agreements for Business Taxes
- Eased the Rules to Obtain Offers in Compromise (Settling Taxes owed for Less Than You Owe)
- Changes to Currently Not Collectible Status
- Expanded Penalty Relief (Now expired)
IRS Fresh Start Tax Lien Changes
Before the Fresh Start Initiative, the IRS issued federal tax liens for all kinds of liability levels. Under the new rules, the IRS does not issue tax liens if the tax owed is less than $10,000. Note that there are rare exceptions to this rule.
A tax lien is a legal claim to your assets, and traditionally, it appeared on your credit report. A tax lien is similar to how if you owe money on a car loan, your lender has a lien on your car. If you sell the car, the lender is entitled to the proceeds of the sale. Similarly, if the IRS issues a lien, the IRS is entitled to any money you get if you sell your assets. When an IRS lien is on your credit report, lenders usually will not give you loans. Note that as of 2018, the IRS no longer sends federal tax liens to the credit bureaus so the lien won't appear on your credit report, but it is a public record so creditors will be able to find it.
IRS Fresh Start Program Made Lien Withdrawals Easier
Under the Fresh Start Initiative, the IRS also made it easier to get tax liens withdrawn. When the IRS removes a tax lien, that is called a tax lien withdrawal.
You can get a tax lien removed by paying off all your taxes. Alternatively, if you set up a monthly payment plan, you can get the tax lien withdrawn after you make three consecutive payments. However, you must owe less than $25,000 in tax debt and agree to a direct debit payment method.
Unfortunately, the IRS doesn’t always remember to automatically withdraw liens. You can request to have your tax lien removed using Form 12277 (Application for Withdrawal).
Fresh Start Installment Agreement for Individuals
An installment agreement, or a long-term payment plan, is where you make monthly payments on your taxes. With updates to the Fresh Start Initiative, the IRS let taxpayers who owed up to $50,000 set up streamlined installment agreements (more now, read below). A streamlined agreement offers a “streamlined” application process—you don’t have to provide a lot of financial details. As long as you meet a few minimum criteria, the IRS approves your installment plan.
In 2016, the IRS expanded the provisions of the Fresh Start Program and made it even easier for taxpayers to get streamlined installment agreements. The IRS rolled out the new rules on a trial basis and kept most of the changes in place.
Under the new rules, you can qualify for a streamlined agreement if you owe up to $100,000. If you owe between $50,001 and $100,000, you can obtain up to 84 months to pay off your taxes (see all of the consequences by IRS tax debt amount owed). That is an extra year. If you owe more than $25,000 but less than $50,000, you don’t have to set up a direct debit—you can mail a check or pay manually every month. You can see the overview of IRS changes here.
To apply, use the IRS’s online payment agreement tool if you owe $50,000 or less including tax debt, penalties and interest. If you owe more than $50,000, you can apply using Form 9465 (Installment Agreement). The IRS will ask for form 433-F if you decide to not pay via direct debit or payroll deduction.
You can send payments to the IRS in a variety of ways, including by Direct Pay, debit card, credit card, check, or money order. However, to prevent missed payments and in some cases to avoid tax liens and other forms, it is always wise to pay via direct debit or payroll deduction. Setup fees depend on your income level, and how you apply. If you apply online and are not considered low-income, fees range from $31 dollars to $149 dollars. If you're low-income, the set-up fee is $43 if you apply online, but the IRS will waive the fee if you set up direct debits for your payments. You will also incur additional charges for paying with a debit or credit card.
IRS Fresh Start Installment Agreement for Businesses
Generally, the IRS is a lot stricter about business taxes than individual tax debt. If your business owes up to $25,000 in outstanding tax debt, you can qualify for a streamlined installment agreement. Before the IRS Fresh Start, the threshold for business tax debt owed was only $10,000.
If your business has employees, you may qualify for In-Business Trust Fund Express Installment Agreement for back payroll taxes. To qualify, you must be in business, have employees, and be able to pay off all your liabilities within 24 months or before the Collection Statute Expiration Date (CSED). This payment plan is great for businesses that got behind in the first year or two of operations but now have enough revenue to cover payments on their taxes owed.
If your business is an out-of-business sole proprietorship, you can qualify for a streamlined installment agreement over 72 months if you owe up to $50,000.
IRS Fresh Start Offer in Compromise
An offer in compromise is when the IRS lets you settle your taxes for less than you owe. In other words, you make an “offer” of how much you can pay, and the IRS “compromises” by letting you pay less than you owe.
As a general rule of thumb, the IRS only accepts offers in compromise if your offer represents the most amount of money the IRS could get if it used other collection activities. For example, if you owe $15,000 and are living on a fixed income with just enough to cover necessary expenses and you offer $5,000, the IRS may accept that amount if that is all you have. However, if you have $20,000 in your savings account and make more money than is “required” to pay your monthly living expenses, the IRS usually won’t accept that low of an offer. Instead, the agency may just require you to pay through a payment plan.
Applying and Qualifying for an Offer in Compromise
However, thanks to the Fresh Start Initiative, it is now easier than ever to get an offer in compromise. You can apply for an offer in compromise on up to $100,000 in taxes, and you can choose between a lump sum or a short-term periodic offer in compromise. Additionally, the Fresh Start Program radically changed for the better how the IRS calculates your future income in determining whether to accept your OIC. Before the Fresh Start Program, the IRS considered four years of income with a Lump Sum OIC (which you pay in a lump sum within five months of getting approved). However, now the IRS only considers one year of income. Finally, with the Short-Term Periodic OIC (which you pay over two years), the IRS only considers two years of income when formerly it was five years.
As of March 2017, the IRS will immediately reject your offer in compromise if you have any outstanding tax returns, but it will keep the down payment and apply that to your taxes owed. Additionally, to qualify, you must not be in bankruptcy or be behind on any of your current tax payments. To get a sense of whether or not you may qualify, you should work with a tax professional as the IRS’s OIC online qualifier tool is not always accurate.
How Much Will the IRS Usually Settle for?
Tax settlements vary based on the taxpayer's ability to pay. The IRS will usually only settle if it believes your settlement represents the most you can afford to pay. Tax debt settlements are based on your income and the equity in your assets.
IRS Fresh Start Initiative: Currently Not Collectible Status
Currently not collectible is when you prove to the IRS that you can’t pay your taxes, and the IRS stops all collection activity on your account. A currently not collectible or CNC designation is usually only temporary. The IRS regularly reviews your tax returns every two years to see if anything has changed.
The Fresh Start Initiative makes it easier to apply for currently not collectible status. In particular, if you owe less than $10,000, you may not have to provide as many financial details or documents to the IRS. Some common scenarios are listed below for people that generally qualify for currently not collectible status:
- You earn less than $84,000, and all your income goes to IRS-approved living expenses.
- All your income is from Social Security, welfare, or unemployment benefits.
- Your tax owed is almost ready to expire.
- You are unemployed and have no income.
To apply for currently not collectible status, see our section on the qualifying for Currently Not Collectible with the IRS.
Penalty Relief With IRS Fresh Start Initiative
The Fresh Start Initiative started by offering special penalty relief to people who were earning less money or who had been unemployed for a certain amount of time.
In 2012, the IRS provided a six-month grace period on failure to file tax penalties for individual wage earners and self-employed taxpayers for the 2011 tax year. Moreover, it offered unemployed taxpayers until the tax extension filing deadline to pay taxes and avoid the failure to pay penalty. These provisions have expired.
However, you may still qualify for the first-time penalty abatement, which existed before the Fresh Start Program. For example, when you don’t file a return or if you pay late, the IRS adds penalties to your account. If this is your first time facing penalties, you can have them erased through the first-time penalty abatement waiver. To qualify, you must not have tax penalties for the previous three years among other requirements. Even if you don’t qualify for first-time penalty abatement, you may also consider removing penalties if you have “reasonable cause” for not meeting your tax obligations.
You may want to get help from a tax professional when applying for penalty abatement.
How to Apply for the IRS Fresh Start Program
The Fresh Start Program is not a program. Instead, it’s a collection of IRS policy changes that make it easier to get your tax issue resolved. As explained above, there are a variety of ways to apply for a fresh start. The application process depends on whether you qualify for an individual installment agreement, a business installment agreement, an offer in compromise, or currently not collectible status.
With all of these programs, you usually have to meet the following criteria:
- Up to date on all filing requirements.
- Current with estimated quarterly tax payments if self-employed.
- Made all federal tax deposits (payroll tax, sales tax, etc.) if you are a small business owner.
- Not in bankruptcy.
To figure out which part of the Fresh Start Program is right for you, contact a local tax professional. They will help you find the best tax debt relief option for your situation, and they will deal with the IRS or your state tax agency on your behalf.
Benefits of Working With a Local Tax Professional
A local tax professional can help you identify which tax resolution options will work best for your tax and financial situation. Then, they can help you apply. Remember, a tax professional is advising you with your best interest at heart, and they work accordingly. In contrast, if you’re working directly with an IRS agent, their main concern is to ensure the IRS gets paid. You can find a list of tax professionals here that specialize in resolving IRS problems.
You've probably found this page because you heard about the IRS Fresh Start Program in an ad somewhere. Then, when you searched for the IRS Fresh Start Initiative, Google showed you this page. That's great -- we're glad you're here.
As we noted above, big tax relief companies use the IRS Fresh Start Program as a marketing hook. They talk about the Fresh Start Program in their ads to get people excited about tax debt relief. In some ways, that's a good thing. The IRS created the fresh start tax program to help people. However, these ads are a bit misleading because they make it sound like the IRS Fresh Start Initiative is a specific program that you apply for, and they also make it sound like this program is new.
Neither of these things is true. Again, the IRS Fresh Start Program is a bunch of updates that the IRS made to its tax relief programs over a decade ago. Since that time, the IRS has made even more changes to these programs. In particular, the IRS made several changes to the offer in compromise program during the COVID pandemic that are even more generous than the updates made with the Fresh Start Tax Program. In particular, you may now be able to keep your tax refund if you get approved for an offer in compromise. For a look at the specifics, check out this overview.
You may be wondering if you should find one of those big tax debt relief firms to help you learn more about the fresh start tax program. After all, those companies were the ones who made all those compelling ads about the IRS Fresh Start Relief Program. Ideally, you should not work with those companies. They are part of an industry that has a history of consumer abuse. They are notorious for making promises that they can't keep and providing their clients with subpar services -- take a look at our post on the worst tax relief firms to learn more.
Instead, you should follow the advice of the Federal Trade Commission (FTC) and look for a local tax professional to help you. TaxCure is designed to help you find a local tax professional. We have a directory of tax professionals from around the country, who specialize in tax debt resolution. Using our site, you can search for tax professionals with the experience you need. Then, you can give them a call, talk about your tax issue, and get a sense of whether or not they're the right person to help you.
A local tax pro gives you hands-on personalized attention. They take care of your issue ethically, and they help you find the best option for your situation. In contrast, when you call a big tax relief firm, you deal with a salesperson who doesn't really understand taxes and isn't bound by any professional ethical guidelines. Get the high-quality tax help you deserve by using TaxCure to find a local tax debt specialist in your area.