The purpose of the IRS Fresh Start Initiative was to assist taxpayers resolve their back-tax debt in 2011. Afterwards, the initiative was expanded to help even more people resolve their tax debt.
Many taxpayers have gone through financial difficulties that made it uneasy to pay their federal taxes in a timely manner. The IRS introduced the Fresh Start Initiative to help these taxpayers.
Penalties and interest frequently as after the tax deadline passes. They accumulate daily until the whole balance is paid. This causes the debt to grow exponentially, therefore making it more difficult to pay.
The IRS offers useful programs for taxpayers who wish to become compliant with the IRS tax code. Some of these programs offered include penalty abatements, offers in compromise, installment agreements and more. Although all of these offer important relief, some of them aren’t suitable for all taxpayers. Many experts recommend seeking the aid of a tax professional to help determine which option will return the most constructive results.
Expansion of the Fresh Start Initiative
The Fresh Start Initiative is a sequence of relief programs that addresses tax debt via several angles. These can include offers in compromise, installment agreements and penalty abatements. They offset difficult collection efforts, such as tax liens, wage garnishments and bank levies while transitioning the taxpayer into compliance with the IRS.
The expansion of the previously successful Fresh Start Initiative permits more individual and business taxpayers to be eligible for these helpful programs.
Modifications to Tax Liens in the Fresh Start Initiative
A tax lien on a property entails that the back-tax debt be paid before a new loan is taken out on the property.
This does not only apply to taxpayers who want to sell their property, but also the taxpayers who want to refinance.
Before the expansion of this program, the IRS had the choice of imposing a lien on a taxpayer’s property at their judgment.
After the expansion, the IRS keeps this collection action for taxpayers who owe $10,000 or more.
In addition, the taxpayer may demand that the IRS remove the lien after the debt is paid down to below $10,000.
This action is not without risk, however. If the taxpayer defaults on the remainder of the debt, the lien will likely be imposed again later.
Another lien relief option offered with the expansion makes its removal possible for even more taxpayers.
You may decide to have a negotiated portion of your paycheck held back and sent to the IRS through a Direct Debt Installment Agreement.
This installment option allows the taxpayer to request instant removal of the lien from their property, in spite of the amount of their tax debt.
The expansion gives taxpayers affordable options for settling back-tax debt while also allowing him or her to sell or refinance their asset.
It also allows him or her to retain the proceeds of the sale or refinance. Before the expansion, the IRS would require these proceeds to pay the balance of the debt if they approved to remove the lien.
Penalty Abatements are Part of the Fresh Start Initiative
It is significant to note that penalties can be up to 40 percent of the total back-tax debt you owe. While this significant number is surprising for many taxpayers, relief is available in many cases.
Receiving penalty abatement on your debt implies the IRS removes or reduces the penalty, making tax debt resolution within reach.
Penalty abatements may be applied to numerous penalties, including the Failure-to-File penalty, which is for filing your tax return after the time limit and the Failure-to-Pay penalty, which is for paying your tax after the deadline, and more.
▪ The IRS suggests that you may qualify for penalty abatement if the following are factual:
▪ You didn’t earlier have to file a return, or you have no penalties for the three tax years prior to the tax year in which you received a penalty.
▪ All currently required returns were on time or you filed an extension of time to file.
▪ You have paid or arranged to pay any tax due.
In addition, the following qualifications are noted for a First Time Abatement (FTA):
▪ You didn’t previously have to file a return or have no penalties for the three tax years prior to the tax year in which you received a penalty.
▪ All currently required returns were on time or you filed an extension of time to file.
▪ You have paid or arranged to pay any tax due.
The Fresh Start Initiative Includes Installment Agreements
Paying back-tax debt in monthly installments isn’t a new notion for tax relief; however, it remains an important part of the endorsement process for tax liens and penalty abatements.
Taxpayers must file all previous tax returns before requesting tax relief from the IRS.
The IRS will put the terms of an installment agreement into consideration after they get a clear picture of the total tax owed.
There are so many installment agreements that the IRS will consider. Many of these are much easier to qualify for after the Fresh Start Initiative expansion.
In addition, the expansion extended the term length for installments from five years to six years. The change makes monthly payments more affordable for many taxpayers.
It’s also common for the IRS to request financial documents. These often include assets, income and expenses to determine the monthly payment amount.
The IRS does not regard subsequent payment plans for taxes owed in future years, so be sure to remain up to date on your taxes throughout the period of the installment agreement. In addition, it’s essential to maintain timely monthly payments until the debt is paid.
The IRS gives the following tips for managing an installment agreement with favorable results:
✔ Ensure to pay your minimum monthly payment when it’s due.
✔ File all required tax returns on time and pay all taxes in-full and on time. Get in touch the IRS if you’re unable to do so.
✔ Your future refunds will be applied to your tax debt until it is paid in full.
✔ Make all scheduled payments even if we apply your refund to your account balance.
✔ When paying by check, include your name, address, SSN, daytime phone number, tax year and return type on your payment.
✔ Let the IRS know if you move and provide your updated address.