Anyone who listens to the radio or watches television has heard adds referring to the “new” IRS Fresh Start Initiative. If you were to enter IRS Fresh Start Initiative in a search engine, you would be surprised what you will see in the results. None of the first page results come from IRS.GOV. So, what is the IRS Fresh Start Initiative?
First there is nothing new about the Fresh Start Initiative. The IRS did take some steps to help taxpayers with large tax debts back in 2011. These were collectively labeled the “Fresh Start Initiative”. Let’s look at these policy changes and how they may affect taxpayers who owe the Department of the Treasury.
Prior to 2011 the IRS could file a Notice of Federal Tax Lien (Letter 3172) on any debt larger than $5,000. Now that minimum debt level is $10,000. This doesn’t mean the IRS won’t file a lien below $10,000 if they believe the taxpayer is non-responsive. This will affect those who have significant debt and wish to sell those assets. A competent representative can help client remove these liens in the right circumstances.
The next policy change was to make the removal of tax liens more efficient. It also established methods for taxpayers to remove the lien if a payment plan is agreed to that meets certain conditions including a direct debit payment plan and three consecutive successful payments. Working with the your advisor, this can be a great tool to create a new start for the taxpayer.
The next policy change has to do with installment agreements. Before 2011, a taxpayer who owed more than $25,000 to the Federal Government, had to negotiate with the IRS. The streamlined installment agreement was available for debts less than $25,000. The streamlined installment agreement is a web-based plan that is instantly approved or disapproved based on the amount of the proposed payment. Since 2011, that threshold has been bumped up to $50,000.
For businesses, the threshold has gone from $10,000 to $25,000. Businesses that owe more than $25,000 can pay the debt down to $25,000 and qualify. Part of this change directs the business into the direct debit installment agreement.
For the taxpayer that owes more than they can pay, the IRS streamlined the Offer in Compromise (OIC) process and updated the financial requirements. Two significant changes to the IRS process are noteworthy. First, in the case of Lump Sum OIC, the IRS will only look at one year of future income. They used to look at four years.
The second noteworthy change has to do with the Short-Term Periodic OIC. The IRS, before 2011, looked at five years of future income and, after 2011, that went down to two years.
The program has also been expanded to include taxpayers with up to $100,000 in annual income. Living expenses have also been updated. Consideration is now part of the process for repayment of loans against assets including obligations related to preparing the OIC.
I cannot over-emphasize the complexity of the OIC process. While a taxpayer can download the forms and instructions from the IRS website, the probability of success is greatly diminished. A taxpayer should consult a competent professional. The success rate for DIYers, is single digit. Professional success rates are much higher, as high as 70% by one estimate.
The final significant change is to the Currently Not Collectible Status program. This temporary, year to year program gives the taxpayer a reprieve on repaying the debt for as long as the financials show there isn’t the money to pay the debt. Enforcement actions stop. It is the taxpayer’s responsibility to prove they qualify and can be reevaluated annually.
The policy changes changed the process for individuals owing $10,000 or less, by simplifying the documentation requirements.
The 2011 Fresh Start Initiative is not new and can make recovering from a tax debt and the stress included with collection efforts simpler and more streamlined. This is not a magic program that will make all tax debt go away, not are you likely to see 80 to 90% reduction in tax debt by calling the firms advertising their services.
Some people actually do have these results, but they are the exception, not the rule. The IRS is the biggest, most efficient and most powerful collection agency in the world. They are not your friend or on your side. You should never go to court without a lawyer and you should never talk to the IRS without competent representation. Let us take the weight off your shoulder and put on ours. This is what we do.