Resolving Tax Debt with the IRS Fresh Start Program
When you haven’t paid your taxes and are riddled with debt to the IRS, it might seem like the point of no return. Perhaps you feel like you’ve been hiding and have no way out.
The good news is that the IRS offers some effective ways to help.
The IRS Fresh Start Program gives individuals and small businesses a series of debt relief options. Through the Fresh Start Program, taxpayers can utilize reduced payments and payment plans — including monthly payments, a lump sum payment or deferred payments — to avoid tax liens and other penalties.
Here Are Some Ways to Get a Fresh Start With Your IRS Tax Debt
It might seem simple. The idea that you can apply to the IRS to pay back less money to your back taxes or pay it over time could well be the light at the end of the tunnel.
But the rules are complicated and what you write on any IRS form is viewed with scrutiny. Speak with a highly experienced tax lawyer to determine which options are right for you and how to apply for them.
Relief from a Tax Lien
Under the IRS Fresh Start Program, the tax debt amount at which the IRS will file a Notice of Federal Tax Lien against a taxpayer was increased from $5,000 to $10,000. The IRS can still choose to file a tax lien against a taxpayer with debt below this amount in limited circumstances.
Under the Fresh Start Initiative, the IRS also made it easier for a tax lien to be withdrawn, which allows you to sell your property again.
For tax debt balances that are $25,000 or less, an individual taxpayer may be able to enter into a direct debit installment agreement, as long as some other conditions are met.
Typically, the tax lien withdrawal can be requested after three direct debit payments have been made in a row.
It is also an option in some situations to convert a regular installment agreement to a direct debit installment agreement.
Under the Fresh Start Program, the IRS made it easy for a taxpayer to qualify for a streamlined installment agreement that allows you to extend your payments of your back taxes up to 72 months.
How much a taxpayer must pay each month can be based on the taxpayer’s ability to pay. However, the benefits of the streamlined installment agreement is the amount is calculated without a financial analysis or verification of assets, income, expenses and liabilities. Thus, this program can be beneficial for high income earners.
This option is available for individual taxpayers who have up to $50,000 in back taxes due to the IRS and businesses that have up to $25,000 in IRS tax debt. It means you can sleep at night knowing that the IRS won’t come seize your assets.
It is important to know that a 72-month installment agreement requires a taxpayer to pay all tax periods within the 10-year Collection Statute Expiration Date (“CSED”). That means the monthly payment could be higher for certain taxpayers.
Tax attorney Alyssa Whatley has helped many clients negotiate streamlined installment agreements with the IRS and can help you figure out whether this solution will work for you.
Offer in Compromise (OIC)
The IRS Fresh Start Program open the door for more taxpayers to qualify for an Offer in Compromise (OIC). However, the IRS will not approve an OIC if they think you are able to pay in full based on your reasonable collection potential (RCP).
An OIC is an agreement that a taxpayer can reach with the IRS to settle their back taxes for less than the total amount they owe based on the taxpayer’s monthly disposable income and equity in assets.
A skilled tax attorney can help you evaluate your financial situation and decide whether you might be eligible for an OIC. There are specific ways to draft your offer to make it more likely to be accepted. Generally taxpayers with representation have a higher rate of acceptance as it is very important to follow all the rules in calculating the minimum offer amount and providing the necessary supporting documentation to back up the calculation.
Lastly, it is important to only file offers that are likely to be accepted. Filing an offer that is not likely to be accepted can put a taxpayer in a worse position as the IRS statute of limitation is frozen while the IRS is considering the taxpayer’s offer.
The Law Offices of Alyssa Maloof Whatley prides themselves on honest and transparent representation and will not file offer in compromises that do not have a likelihood of success.
Often times, tax resolution companies that operate “Offer Mills” will file offers that have a low chance of acceptance. For the past few years, the IRS has included these types of tax resolution firms on their dirty dozen list stating, “These “mills” contort the IRS program into something it’s not — misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars.”
Nearly all of the OICs tax attorney Alyssa Whatley has drafted have been accepted by the IRS, which means that her clients were able to settle their tax debt and pay less money back to the IRS than the total they originally owed.
Currently Non-Collectible (CNC) Status
When a taxpayer is designated as Currently Non-Collectible (CNC), the IRS may not issue any enforcement actions against them.
The IRS Fresh Start Program made it easier for taxpayers who owe $10,000 or less to be classified as CNC.
In order to qualify for this status, your gross monthly income must be found to be less than your allowable expenses, based on certain national standards.
CNC means the IRS has found that paying back your federal tax debt will cause significant financial hardship for you.
However, qualifying as CNC doesn’t mean your tax debt goes away. Instead, your tax debt will continue to increase with more penalties and interest until the debt expires due to the statute of limitations, and the IRS will apply any refund to your old tax debt. CNC status generally lasts for a period of 24 months. Often times, the IRS will ask for updated information if your income increases or your financial situation changes.
Delaying payment of taxes or not paying at all typically means extra fees for penalties. And those penalties can really add up. You might be able to apply to have those fees removed or reduced through the first-time abatement program or reasonable cause.
Figuring out whether any one of these programs is right for you is not always easy. An experienced tax lawyer can not only help you decide which option might help you, but also they can help you apply and negotiate the process with the IRS.