Overview: The IRS Fresh Start program expanded access to streamlined installment agreements from $10,000 to $50,000. Now, individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (6 years). While the IRS generally will not require a financial statement, they may need some financial information from the taxpayer.
Requirements: In order to apply for the program, you must be in tax compliance. This means that you have filed at least the past six years of returns and made any required estimated tax payments (if applicable).
Liens: If a taxpayer requests a streamline agreement prior to Federal Tax Liens being filed, the IRS will not file a lien unless the taxpayer defaults the agreement in the future. If a lien has already been filed, a taxpayer may request to remove the lien once the total account balance is under $25,000 and 3 direct debit installment agreement payments. Taxpayers also need to request this in writing.
Pros: The upside to the 72 month Fresh Start installment agreement is no financial statement is required and it is not based on ability to pay. This is especially beneficial for individuals that have a high income or lots of equity in assets such as a home, car, or retirement account. By setting up the installment agreement, you will be in good standing with the IRS.
This means the IRS will not take any additional collection action such as Federal Tax Liens, Bank Levies, Social Security Levies, Wage Garnishments, or Seizures. As mentioned above, the program will also prevent tax lien filings or help remove tax liens already filed once the balance is under $25,000 and 3 direct debit installment agreement payments have been made. Overall, the Fresh Start program is good for those who can afford the monthly payment amount and looking to improve or maintain their credit.
Cons: The 72 month Fresh Start installment agreement must pay all tax periods within the statute. Generally the IRS has 10 years to collect the tax from the date of assessment. The date at which the tax expires and is no longer legally collectible is called the Collection Statute Expiration Date (“CSED”). If you have a tax period that is about to expire due to the CSED, the streamline payment maybe very high to ensure each period will be paid within the statute.
In this case, it may be better to have one of our Atlanta Tax Lawyers look at a financial based payment plan that may be lower based on your individual circumstances. In order to remain in Fresh Start installment agreement, taxpayers must continue to be tax compliant, i.e. file and pay any future tax due on time. If you fail to remain tax compliant by filing a late return or creating a new balance due, it can default your agreement and you will have to ask to reinstate the agreement. The more times you reinstate the installment agreement, the more difficult it become.
Thus, it is very important for taxpayers to remain tax compliant because it will save you interest and penalties on the current year and prevent you from a continuous circle of always owing tax. However, interest and penalties will continue to accrue on the old tax liabilities included in the payment plan.