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9 Qualifications For The IRS Fresh Start Program

Boost your chances of getting qualified for the Fresh Start program with these nine qualifications.

RELATED: Rejected Offer In Compromise: How To Negotiate With The IRS

In this article:

  1. What Is the IRS Fresh Start Program?
  2. A Primer on the Fresh Start Program Qualifications
  3. Three Main Features of the Fresh Start Program
  4. IRS Fresh Start Relief Program Qualifications

How to Qualify for the IRS Fresh Start Program

What Is the IRS Fresh Start Program?

In 2008, the IRS launched the Fresh Start program (Form 1127-A) to help struggling taxpayers pay back their taxes. The program is designed to offer tax payment alternatives to both individual and business taxpayers.

Do You Qualify For IRS Back Tax Relief? Take The Quiz Now!

While taxpayers who are experiencing financial hardship mainly go through the IRS Fresh Start process, other interested parties may include:

  1. A delinquent taxpayer with a bad credit score, hoping to improve lender perception. Important: Do note that tax liens no longer appear on credit reports, but may still affect how lenders see a potential client.
  2. Those taxpayers with special tax problems and circumstances. These taxpayers can include innocent spouses or a taxpayer who went through a bad case of identity theft.
  3. Any taxpayer who went through tax relief options (i.e. going through the offer in compromise program and applying for a CNC status) and still has problems with paying taxes as well as other debts to lenders.

Examples of such alternatives are the following:

Offer In Compromise (OIC)
IRS Installment Agreement
Tax penalty abatement
Business tax relief
• Payroll tax relief
• Lien or garnishment release

A Primer on the Fresh Start Program Qualifications

The IRS simply wants to collect unpaid taxes, not to make life miserable for delinquent taxpayers who have difficulty paying for living expenses. A taxpayer can raise to the IRS that a smaller tax debt is better than an uncollectible one, and as long as the taxpayer can persuade the IRS of a realistic tax administration plan, the IRS usually accepts, but not always.

The IRS Fresh Start program can help deserving taxpayers get back on their feet financially. Finding an option to settle your tax debt is a lot easier now, as the tax relief options available add more potential ways to mitigate tax debts if the IRS Fresh Start program will not work for you.

Lastly, for those who want a shorter discussion about the IRS Fresh Start program, you must first check if you pass the Offer In Compromise Pre-Qualifier. After around 10 minutes on the site, you can have a rough estimate of whether or not the IRS will accept you in the Fresh Start program.

Three Main Features of the Fresh Start Program

1. Increase in the Tax Liens Threshold

confused man looking at his computer | Qualifications For The IRS Fresh Start Program | fresh start program | irs fresh start program
A man looks confused while working on his computer.

Tax Lien Definition: The government’s right to legally hold a property as a means of securing payment for delinquent taxes

A tax lien represents the government’s legal claim over the assets of a noncompliant taxpayer. The government may resort to placing tax liens in an attempt to recover tax payments.

Through the Fresh Start program, the maximum amount of tax liability that would merit a Notice Of Federal Tax Lien has been increased from $5,000 to $10,000.

And, taxpayers may also waive receiving the said notice if they are going to pay their tax debt via the Direct Debit Installment Agreement.

Again, it bears repeating that tax liens no longer impact the credit score of a delinquent taxpayer. This non-impact trait applies to both federal and state tax liens.

2. IRS Installment Agreements

Now, with the Fresh Start program, taxpayers can pay off their tax debts through the different IRS-approved installment plans.

The payment option may be as long as 72 months or six years. This is to help willing taxpayers pay off debts without any undue financial hardship.

Important: Do note that an IRS installment plan may have adjunct fees to it, like the setting-up fees from the IRS or the transaction fees from the bank. There are many options on how to go through a payment plan, so a taxpayer may get a better deal by looking at the IRS Installment Agreement options.

Usually, a Fresh Start requires a taxpayer to save and pay the IRS a big lump sum. With the installment plan, a delinquent taxpayer can schedule payments and avoid paying one giant amount.

3. Offers in Compromise (OIC) Agreement

The Offer in Compromise helps the IRS assess the taxpayer’s ability to pay, and consequently create a suitable payment plan. It may only be granted to eligible taxpayers.

This program helps the IRS cater to a larger group of taxpayers.

This program also helps taxpayers avoid the following consequences of creating late tax payments:
• Tax garnishments;
Tax liens;
• Possible bankruptcy; and
• Asset repossessions or seizures
Generally, the OIC grants taxpayers a much lower tax amount to pay, which can greatly assist delinquent taxpayers. Also, a taxpayer has the option to pay the tax debt via an installment plan, which can make the scheduling of finances easier for most taxpayers.

IRS Fresh Start Relief Program Qualifications

The IRS conducts its own meticulous assessments to affirm a taxpayer’s eligibility for the Fresh Start program.

Its assessment will range from the taxpayer’s current financial situation to his or her tax compliance history.

In 2012, the IRS specifically mandated the following criteria for eligibility:

1. Tax Balance of Less Than $50,000

IRS tax auditor reviewing documents | Qualifications For The IRS Fresh Start Program | fresh start program | fresh start program irs
An IRS tax auditor sitting at his desk reviewing paperwork

For 2012 onwards, the IRS decided to increase its threshold for IRS installment agreements to $50,000 for balances payable in six years.

This means taxpayers whose tax liability is only up to $50,000 may be eligible to pay over a series of monthly or annual installments.

Also, the maximum length of installment payments was raised to 72 months.

And, taxpayers can already avoid receiving a tax lien notice through the direct debit installment agreement if their liability is between $25,000 and $50,000.

2. Insufficient Annual Income Earned

A taxpayer needs to prove that he or she is earning insufficient annual income, as well.

For individual and business taxpayers, earning insufficient annual income means making less than $100,000 annually. And, for married couples, this means making less than $200,000.

The IRS may grant taxpayers with eligibility to the Fresh Start program if they can prove that paying their whole tax liability would result in an undue financial hardship.

3. A 25% Drop in an Individual’s Net Income

This is for any self-employed individual who experienced at least a 25% decrease in business income.

Do You Qualify For IRS Back Tax Relief? Take The Quiz Now!

The sudden drop may be because of the following:
• An economic downturn, such as the global recession
• Sudden unemployment of the individual for 30 consecutive days
• Sudden unemployment of the individual’s spouse for 30 consecutive days

4. A Spouse Meets the Aforementioned Qualifications

A simple way to be eligible for the Fresh Start program is when your spouse is qualified for it.

Married couples who are jointly filing for the said program only need one of them to be eligible, to both be considered qualified.

RELATED: Innocent Spouse Relief | Qualifications And Requirements

Also, to boost your chances of eligibility, you need to show the IRS you are properly declaring the following:

5. Correctly Filed Annual Tax Returns

tax concept accountants filling online information | Qualifications for the IRS Fresh Start Program | irs fresh start | irs fresh start program 2019

One of the first few things that you can do is to check if you ever missed filing a tax return throughout the years.

If so, then you have to start filing for it. The IRS can be very strict about consistently paying tax returns annually. Part of its evaluation of your tax compliance history is your consistency of payments.

During the evaluation, you may show the IRS the complete documentation of your previous tax returns throughout the years. This may boost your chances of eligibility.

6. Consistently Declared Withholding Tax Amounts

Also, part of the IRS’ evaluation on your tax compliance is checking your declared withholding tax amounts.

The IRS will also check as to whether your declarations are left consistent for at least 6 months. This assessment will help the IRS monitor if you are being honest about your declared income and tax dues.

In addition, during the IRS’ evaluation, you may also show other supporting documents that verify the truthfulness of your withholding tax amounts.

To show good faith and responsibility, a taxpayer should keep financial records in an organized manner. By giving the IRS these proofs, a taxpayer proves not only facts but also trustworthiness, which increases the chances of getting accepted to the Fresh Start program.

7. Foreign-Derived Income and Assets

This qualification refers to any asset or income earned outside the United States.

Having foreign income and other investments may be a touchy topic for the IRS. This is because a lot of reported tax fraud happened with the use of offshore assets.

Before the IRS’ assessment, you may look into the IRS Offshore Amnesty Disclosures Program. This may help you properly disclose your foreign-derived income, to avoid unnecessary tax penalties.

8. Inability to Pay Taxes

businessman with empty wallet | Qualifications for the IRS Fresh Start Program | fresh start program | fresh start tax program
A man opens his empty wallet

One important piece of information you have to disclose to the IRS is your inability to pay or, if worse comes to worst, your bankruptcy.

For individual taxpayers, the most common type of bankruptcy is Chapter 13. And, for business taxpayers, the most common type is either Chapter 7 or Chapter 11.

To file for bankruptcy, you may first reach out to IRS Centralized Insolvency Operations Unit. And then, you may pass the necessary documents and other supporting pieces of evidence to the IRS.

Declaring bankruptcy may be a tedious process. But, declaring bankruptcy may help the IRS adjust the types of payment options granted to you.

Such payment options include the Offer In Compromise or an IRS payment plan.

9. Complete Business Tax Deposits

Another touchy topic for the IRS is a business’ ability to monitor its employees’ payroll taxes. Of course, this applies not only to those with a corporation but also single proprietorships.

Businesses should be able to prove to the IRS that the taxes withheld from employees are paid to the IRS. This is because in the eyes of the IRS, not rightfully submitting the withheld taxes is considered massive theft.

So, to show proof of tax payments, you may also need to attach supporting documents as you undergo the assessment by the IRS.

The screening process for the Fresh Start program may be tedious but as long as you cooperate with the IRS, the program would indeed help.

As long as you apply with good faith and qualify for the IRS Fresh Start program, the chances of approval become higher if you also provide the IRS with good reasons why you should be accepted.

Ask for advice from professionals like a tax lawyer, CPA, or a tax advocate, but ask them first if they specialize in law or if they are a registered tax preparer. If the mistake can be traced to the professional rather than the taxpayer, the IRS can forgive the taxpayer provided he or she acted in good faith.

Do you really think the IRS Fresh Start program is as helpful as it seems? Share your thoughts with us in the comments section below.

If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.

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Editor’s Note: This post was originally published on January 21, 2019, and has been updated for quality and relevancy.