Paying Back Taxes is Getting a Little Easier
In order to help alleviate the tax burden on those who owe back taxes, the IRS developed the Fresh Start Program. By offering certain concessions and adjusting the formulas by which they determine a taxpayers ability to pay, the IRS offers taxpayers an opportunity to avoid additional penalties, liens, & garnishments while paying off their tax debt for pennies on the dollar. In this article we’ll discuss what the IRS Fresh Start Program is, who it can help, and what steps you can take to settle your tax debt.
What is the IRS Fresh Start Program?
Because of the 2008 economic recession, many taxpayers found that they didn’t have the ability to pay their federal taxes due to various situations like job loss, loss of business, or devalued assets. In response, the IRS launched the Fresh Start Program to provide individuals and businesses the ability to pay all or a portion of their taxes according to their ability to pay. The sole purpose of the program was to allow people who were struggling financially to pay their federal taxes without incurring crippling penalties or being subject to garnishments. With the IRS Fresh Start Program, financially tormented taxpayers can pay back taxes easier and faster.
The IRS Fresh Start Program helps taxpayers with more flexible Offer-in-compromise (OIC) terms. The flexibility assesses the taxpayers current financial obligations and their ability to reasonably pay back their taxes. The focus of the expansion in terms of an OIC is in the financial analysis of the taxpayers eligibility. Not all taxpayers are eligible to receive an OIC. The program has been expanded as a measure to help more taxpayers who originally were not eligible for an OIC.
What is an OIC?
An offer-in-compromise (OIC) refers to the agreement between the IRS and the taxpayer to settle back taxes and establish a payment schedule. The tax liability of the taxpayer is often times reduced to an affordable figure significantly lower than the original taxes owed.
There are legal requirements for the acceptance of an OIC. Only taxpayers who can prove their inability in paying the complete amount of back taxes are eligible for an OIC. If the IRS believes that the taxpayer can pay back all the tax amount either in a lump sum payment or in installments then it will typically not settle on an offer-in-compromise. The IRS may make an estimation on a taxpayers ability to pay based on a calculation that includes their assets and income.
6 Ways the Fresh Start Program can help
- The calculation for estimating the future income of the taxpayer has been revised. Before the program went into effect, the IRS estimated the future income of a taxpayer for up to 4 years for offers paid in five months or a lesser period of time. The Fresh Start Program revises the calculation of future income to only one year. For offers paid in 6 to 24 months, your future income can be estimated for up to 2 years as opposed to 5 years.
- Allowances are now given to taxpayers to pay their student loans.
- Allowances are now given to the taxpayers for payment of their state and delinquent taxes.
- Expansion in the allowable living expense, category and amount.
- Making it easier for small businesses to access installment agreements with limited financial information.
- the IRS can file a lien notice in events where the taxpayer owes more than $10,000, which was increased from $5,000.
Liens can be avoided in most circumstances. However, if the IRS puts a lien on your assets the Fresh Start Program offers a simpler process to have the lien removed. If you owe less than$ 25K in back taxes the IRS will consider your application for withdrawal of a lien if:
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- You enter into an installment agreement to pay your taxes
- The IRS believes that removal of the tax lien will enhance the tax collection such as for on-going businesses
- The lien removal provides a mutual benefit to both the taxpayer as well as the IRS
Introduction of penalty abatement to enable Fresh start is also a part of the IRS Fresh Start Program. Certain types of penalties can be eliminated like:
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- failure to file tax returns by the deadline
- failure to pay taxes on time
- failure to deposit the required taxes
- To help small businesses, the IRS Fresh Start Program helps with business and payroll tax settlement programs.
With the Fresh Start Program, the IRS attempts to make the payment of overwhelming back taxes streamlined & penalty free. The IRS continues to update the Fresh Start program to address the changing needs of taxpayers along with the changing financial climate. If you owe back taxes and would like to reduce your tax burden seek the advice a qualified tax attorney with experience in representing individual tax payers.
Jay Finn, CPA provides tax and accounting services to thousands of businesses, business owners, & individuals. Our specialists are experts in tax law, IRS representation, business accounting, & investment strategies to help you and your business grow financially.