How To Avoid Tax Penalties With The IRS Fresh Start Program


How To Avoid Tax Penalties With The IRS Fresh Start Program
What Is The IRS Fresh Start Program?
Eligibility Requirements To Avoid Tax Penalties With The IRS Fresh Start Program
Applying For First-Time Penalty Abatement

Key Takeaways:

  • Taxpayers can avoid tax penalties with the IRS Fresh Start Program by applying for first-time penalty abatement.
  • To be considered eligible for first-time penalty abatement, taxpayers must have a history of good tax compliance, including being up to date on filing their tax returns and not having a history of receiving tax penalties.
  • Taxpayers can request first-time penalty abatement by calling the toll-free phone number on their IRS letter or by filing IRS Form 843, Claim for Refund and Request for Abatement.

How To Avoid Tax Penalties With the IRS Fresh Start Program

The IRS Fresh Start Program aims to offer certain taxpayers a “fresh start” when they have made a first-time error with their taxes, such as relieving them from penalties accrued due to failing to file, failing to pay, or failing to deposit their taxes. If this sounds like you, continue reading to see if you may be eligible for tax penalty relief through the IRS Fresh Start Program.

What Is The IRS Fresh Start Program?

As a way to help taxpayers manage their tax debts in an approach that is suitable for their financial circumstances, the IRS Fresh Start Program was established. The four main types of tax debt relief options offered within the IRS Fresh Start Initiative include installment agreements, offers in compromise, currently non-collectible status, and penalty abatement.

Installment Agreements

An installment agreement is a tax debt relief option for qualifying taxpayers, allowing them to pay back their tax liability through a monthly payment plan.

By being able to make affordable monthly installments toward the total amount of their tax debt instead of being required to pay all of the money they owe in one lump sum payment, people with an installment agreement have the ability to make reasonable payments to the IRS while still being able to afford their regular living expenses.

Offers In Compromise

An offer in compromise (OIC) is one of the programs within the IRS Fresh Start Initiative that allows taxpayers to settle their tax debt for an amount that is less than what they initially owed.

This rare form of tax relief is sometimes an option for struggling taxpayers, and those who qualify are often met with the best tax debt reduction option available for their situation.

Currently Non-Collectible Status

Currently non-collectible status or IRS hardship status permits taxpayers to temporarily pause their tax payments until they get their finances in order and can more reasonably afford to pay taxes.

While this status is displayed on a taxpayer’s tax account, the IRS will not be able to pursue collection activities, including regular tax collection, tax levies, or wage garnishments. However, government agencies may file federal tax liens on their account while listed with CNC status to secure payment in the future.

Penalty Abatement

IRS penalty abatement may be an option for taxpayers who have accrued tax penalties for the first time for being late, failing to file, or failing to pay their taxes.

Penalties continue to build up when a taxpayer has unpaid tax debts, which can make the burden of paying what they owe even more stressful, so having these penalties removed is extremely helpful for people struggling to pay their tax debt.

Eligibility Requirements To Avoid Tax Penalties With The IRS Fresh Start Program

Only certain taxpayers can qualify for first-time abatement for IRS tax penalties. The IRS assesses the qualifications of individuals for penalty abatement based on their taxpayer history and the circumstances of the tax penalties, so if you meet the following requirements, it may be in your best interest to apply for a first-time abatement.

Good Tax Compliance History

For an individual to be considered as having a good tax compliance history, they must have met the following general criteria:

  • They filed the same type of tax return (if applicable) for the previous 3 tax years (before receiving a tax penalty).
  • For the previous 3 tax years, they did not receive any tax penalties, or if they did, the penalty was removed for a reason other than a first-time penalty abatement. 

Additional Requirements

Along with a history of good tax compliance, to be considered for the first-time abatement, taxpayers must also:

  • Have had less than four Failure to Deposit penalty waiver codes over the previous 3 tax years.
  • Have a Failure to Deposit penalty unrelated to Electronic Federal Tax Payment System (EFTPS) avoidance.
  • Have accrued penalties for tax return errors unrelated to event-based filing requirements.
  • Have accrued penalties for returns that do not include the Daily Delinquency Penalty (DDP).
  • Have penalties related to reporting information on a tax return that is dependent on another tax return filing. 

Applying For First-Time Penalty Abatement

The instructions for requesting a first-time abatement for tax penalties will be outlined in detail within the IRS notice you received in the mail. 

Calling The IRS

In some situations, people can resolve their tax problems related to penalties by calling the toll-free phone number printed at the top right-hand corner of the IRS letter. If this option is outlined in your IRS paperwork, the IRS agent will be able to review your account information to determine your eligibility for the first-time abatement without you needing to provide supporting documentation.

Mailing The IRS

Requesting first-time penalty abatement can also be handled through mail correspondence by filling out IRS Form 843, Claim For Refund And Request For Abatement.

IRS tax penalties can be stressful when they amplify the balance on your tax bill, but if you have a history of good tax compliance, you may be eligible to have those penalties removed using the IRS Fresh Start Program. If you have any questions about the IRS Fresh Start Initiative, schedule a free consultation with the tax professionals at Ideal Tax to get started.

Author: Luis Ceja - Director of Operations
Author: Luis Ceja - Director of Operations

Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.

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