The Internal Revenue Service (IRS) has implemented a new “Fresh Start” program that helps taxpayers pay outstanding debt and avoid implementation of tax liens. Individuals who owe back taxes on personal income tax, corporate income tax, and payroll tax may all be eligible for the Fresh Start program.
The IRS will typically file a Notice of Federal Tax Lien when taxpayers owe $10,000.00. In some cases, this amount will be less. With the Fresh Start program, the IRS may now withdraw a filed Notice of Federal Tax Lien when certain requirements are met and the tax debt has been paid off. In order to withdraw the Notice of Federal Tax Lien, an individual taxpayer must request the withdrawal in writing, using Form 12277, Application for Withdrawal. Additionally, if the individual taxpayer is paying off his debt using a Direct Debit Installment Agreement, the taxpayer may qualify for the removal of the lien. However, if this taxpayer defaults on the Installment Agreement, a new lien may be filed and collections resumed.
With the Fresh Start program, individuals who owe up to $50,000.00 can pay through monthly direct debit payments for up to six years. In order to set up a Direct Debit Installment Agreement, the IRS may require certain financial information, such as information on assets, liabilities, monthly income and revenue, and expenses. Additionally, the IRS may need a review of the income tax and payroll tax returns at issue. In order to apply for an Installment Agreement, taxpayers may apply using the Online Payment Agreement tool on the IRS website, IRS.gov, or may file Form 9465 in the alternative. If it is the case that the taxpayer owes more than $50,000 or longer than six years, the taxpayer will also need to provide the IRS with a financial statement. The IRS may ask these individuals to provide one of two forms, Collection Information Statement Form 433-A or Form 433-F.
An additional expansion created by the Fresh Start program was the expansion of the IRS Offers in Compromise (OICs). An OIC, generally, is an agreement whereby taxpayers may settle their debt with the IRS for less than the full amount. An OIC is typically not accepted by the IRS if they believe that the taxpayer’s debt can be paid in full through an installment agreement. Thus, the IRS analyzes taxpayers’ income and assets in order to determine if the taxpayer is eligible for the program. The OIC program is now available to a larger group of taxpayers. In the past, OICs allowed taxpayers to resolve their tax debts in four to five years – that time has not been cut to as little as two years based on changes the IRS implemented to the financial analysis used to determine which taxpayer qualify for an OIC. Now, if an offer is paid in five or less months, the IRS will calculate a taxpayer’s reasonable collection potential by examining only one year of future income. For all other offers (those paid between six and twenty-four months) only two years of future income will be analyzed, as opposed to the five years analyzed previously.
Additionally, the IRS has expanded the range of allowable living expense standards when calculating a taxpayer’s ability to pay off their debt. Allowable living expense standards now include things such as credit card payments, payments for Federal student loans, payments for bank fees and charges, and payments made for local and state taxes.
If you are struggling with tax debt or want to see how can this initiative be helpful for you, please contact us today.