IRS Fresh Start Program: FAQs & 2023 Updates

September 2023

Key Takeaways:

  • The IRS Fresh Start Program is designed to offer those who haven’t had an adverse history with the IRS an opportunity to make payments based on given criteria.

  • The IRS Fresh Start Program aids in tax relief through four main program options, such as installment agreements, offer in compromise, currently not-collectible status, and penalty abatement.

  • You must provide thorough financial documentation and be up-to-date on all tax filings to qualify for the IRS Fresh Start Program.

What Is The IRS Fresh Start Program?

The IRS Fresh Start Program is an IRS initiative designed to help taxpayers with outstanding tax debts by providing flexible tax relief options for settling their tax obligations.

Taxpayers who owe tax liabilities to the IRS but are struggling to pay their basic living expenses can benefit from the tax relief initiatives offered by the IRS Fresh Start Initiative, which can help them reduce their tax debt in a manageable way based on their financial situation.

IRS Fresh Start Program Qualifications

Taxpayers can determine their eligibility for the IRS Fresh Start Program by consulting a licensed tax professional. To be considered eligible for the Fresh Start program, you must meet the following criteria:

  • As a sole proprietor, your income has dropped by 25%.

  • Your annual income is below $100,000 (single).

  • Your annual income is below $200,000 (married). 

  • You owe less than $50,000 in tax debt.

  • You have a clean history with zero missed payments to the IRS.

Taxpayers who meet all of the requirements can submit the Fresh Start program application paperwork to the IRS to initiate the tax relief process. The tax professionals at Ideal Tax can provide assistance and ensure that you are on track with all of the application requirements when applying for the IRS Fresh Start Initiative.

Reducing Your Tax Debt With The IRS Fresh Start Program

In 2023, there are four main tax debt relief programs within the IRS Fresh Start Initiative, each with unique qualification requirements. These are:

  • Installment Agreements
  • Offer in Compromise
  • Currently Non-Collectible Status
  • Penalty Abatements

These pillars of the IRS Fresh Start Program support the goal of relieving taxpayers from the burden of tax collection strategies used by the Federal Government to punish individuals and small businesses with outstanding tax debts, such as financial penalties and tax liens.

company tax return deductions

IRS Payment Plan Options

As part of the fresh start that the IRS offers, installment agreements give qualified individuals the ability to make affordable monthly payments to the IRS as a method of helping them pay their taxes.

There are two main payment plan options offered within the IRS Fresh Start program:

  1. Streamline Installment Plans
  2. Partial Payment Installment Plans

Streamline payment plans are considered long-term, allowing taxpayers to make payments over a period that usually lasts up to 72 or even 84 months.

Partial payment installment plans involve the taxpayer submitting smaller payments over time.

In both cases, the affordable installments are applied directly to reducing the determined tax debt until payments are fully paid. The other good news is that once you are set up with installment payments under an installment plan, you will no longer receive those nasty IRS collection letters.

However, the IRS can and will still charge you interest on the amount of tax debt you owe. After making your third direct debit installment agreement payment and your tax debt balance is below or drops below $25,000, you will be in a better position to prevent or help remove federal tax liens or a tax levy.

You must keep up with your monthly direct debit payments once you have an affordable extended payment plan established. The installment agreement for tax relief is considered the most popular Fresh Start program out of the entire IRS Fresh Start initiative.

Payment Plan Qualifications

To qualify, taxpayers must owe a tax liability of less than $100,000 in taxes, penalties, and interest for a short-term payment plan or less than $50,000 to qualify for a long-term payment plan. The more money owed to the IRS, the more difficult it is to qualify, so hiring a tax professional provides the best opportunity for a positive outcome when applying for an IRS payment plan.

Option If Payment Plan Is Too Expensive

Offer in Compromise (OIC)

Taxpayers who cannot afford to make monthly payments toward their tax debt may qualify for an Offer in Compromise (OIC). The OIC permits qualified taxpayers to make a settlement based on a reduced amount that the IRS will accept in place of payment in full on owed tax debts.

The ability to qualify for the OIC program is your best-case scenario for tax repayment options, as you can reduce your debt and ease your financial situation. However, eligibility guidelines for this method of tax debt reduction are stringent and saved for debt cases. 

Other Initiatives of the IRS Fresh Start Program

Currently Not Collectible Status

Currently Not Collectible Status, also known as IRS Hardship Status, essentially lets taxpayers place their payments on hold while in financial hardship. If you can prove that paying your living expenses along with paying your back taxes will cause financial hardship, you may be eligible.

Currently Not Collectible doesn’t forgive your tax debt but rather delays payments until you’re back on your feet and can afford to pay. If approved, the taxpayer will be placed in an uncollectible status, and the IRS must immediately stop collection actions and release any existing levies on assets. During this process, the IRS may file federal tax liens in case you fail to pay and collect interest on the outstanding amount.

Penalty Abatement

If you have significant penalties with the IRS, there is a chance you could be eligible for the IRS fresh start penalty relief. When a taxpayer fails to file or fails to pay their taxes, they can accrue penalties that increase the debt that they must repay.

As a form of tax relief, the final Fresh Start program offering is known as “Penalty Abatement.” If the IRS determines that you meet a strict set of requirements, they may absolve you of the penalties associated with your tax bill of up to $100.

IRS Hardship Status

The IRS hardship program is located within the Currently Not Collectible (Part 5. Chapter 16. Section 1). It states that taxpayers may qualify for a Currently Not Collectible if they cannot meet the necessary daily living expenses due to the collection of the liability.

Proving hardship requires the submission of financial information using one of the following Collection Information Statement forms:

  • 433A
  • 433F
  • 433B

How Do I Apply For The Fresh Start Program By The IRS?

Taxpayers must prove to the IRS that they cannot reasonably afford to pay their tax debt by gathering specific supporting documentation to use as evidence regarding the state of their financial situation.

The documentation you may be asked to provide during the beginning stages of the application process can include but is not limited to:

Finally, your tax filing must be up to date before you can qualify to reap the benefits of the Fresh Start initiative. This means that in order to get a fresh start, you must complete your unfiled tax returns or incomplete tax returns and ensure your current withholdings and estimated tax payments are correct.

Frequently Asked Questions

What is the Timeline for the Program?

The proper timeline for the Fresh Start program could typically be around 6-12 months. However, there are a few special cases resulting in a longer timeline.

How much does the Program Cost?

The cost differs for each program depending on an individual’s circumstances. For example, a currently not collectible can defer your payments but accrue interest on your balance. If your goal is to reduce the total amount owed, an offer in compromise might be a better option.

What happens if I don't participate?

Consequences can be severe, resulting in various penalties and interest fees. Additionally, taxpayers could be subjected to wage garnishments and liens.

Is the Fresh Start Program legitimate?

You’re probably questioning if the IRS Fresh Start Program is legit. The good news is that the program is 100% legitimate! The IRS has forgiven millions of Americans, giving them financial freedom from tax debt.

What percentage will the IRS settle for?

A non-refundable down payment of 20% of the total amount is what the IRS will typically require before consideration. The amount of settlement varies depending on a taxpayer’s financial status. This includes assets, income, and expenses.

How Does The IRS Fresh Start Program Work Today?

The Fresh Start tax program has historically received a high number of applications, and the economic hardships inflicted on many families during the COVID-19 pandemic amplified this trend, as shown by the record number of applications during 2020.

Many taxpayers still struggle with their tax returns and financial woes as the pandemic winds down and inflation continues, but now that it is 2023, the trend of lenient guidelines is expected to eventually come to an end. For this reason, individuals experiencing tax problems should reach out to a tax relief company as soon as possible to take advantage of the IRS Fresh Start Program.

Being in business for over 13 years, Ideal Tax provides professional guidance to people whose lives have been affected by tax issues. Our team of licensed enrolled agents, accountants, and tax attorneys can help evaluate your tax issue and determine if you qualify for tax relief and the IRS Fresh Start program. Please contact us today for a free consultation!