IRS Fresh Start Program

The IRS Fresh Start Program can reduce penalties on late filed returns and late payments, and makes the IRS installment agreement process easier for some.  The IRS Fresh Start Program has been around since 2011 but was recently expanded to help taxpayers in need that wanted to get right with the IRS.

The IRS Fresh Start Program has provisions that ease policies on tax liens, installment agreements, and the Offer in Compromise.  Of these, the most useful are the penalty relief provisions and the installment agreement breaks available.

Late payment penalties usually apply to your balance due beginning on April 17, even if you file an extension.  The extension gets you more time to file, not extra time to pay.  The late payment penalty is calculated at .5% on the unpaid balance each month, up to 25%.

Under the IRS Fresh Start Program, you can be granted a six month reprieve from this penalty if you pay in full by October 15.  In order to be eligible for the program, you must be either 1) a wage earner who was unemployed at least 30 consecutive days during the tax year, or 2) a self-employed individual who had his net income from business go down by 25% or more from last year.

The IRS Fresh Start Program is aimed at lower income individuals.  If your AGI is over $200,000 for married couples filing jointly, or $100,000 filing single, you don’t qualify.  Also, if you owe more than $50,000 for the year, you are out.

If you fit in to the Fresh Start mold, you may file for relief using IRS Form 1127-A, which is available at www.IRS.gove.  Note that you must file your return by April 15 and then request relief through October 15.  It would not be possible to request relief and file the return on October 15.

The IRS Fresh Start Program also makes it easier to qualify for smaller installment agreements.  As you know from reading this site, an installment agreement allows you to pay off your tax debt over time.  Earlier articles posted by me indicate that you must provide financial information (Form 433-A, etc.) on debts of over $20,000 or $25,000… I use both numbers to allow for interest accumulation and other considerations.

Under the IRS Fresh Start Program, you can file an installment agreement without providing financial information, such as bank statements and pay stubs, on a balance due of $50,000 or less.  Also, you may pay off the debt over 72 months rather than 60 months, assuming you are not coming up against the 10 year collection statute.

So, if you owe $45,000, and can make payments of about $620 per month, then you can setup an installment agreement without providing supporting documents.  These numbers are estimates and don’t take in to consideration interest and penalties that will accrue while you are making payments.

I suggest that the IRS Fresh Start Program means that you can represent yourself before the IRS on tax debts of up to $50,000 if you can afford to make significant payments.  If you owe more than $50,000, or the IRS asks for a financial statement, hang up and call a professional.

Of course, this also means that, if you can’t pay off the debt within 72 months and within the 10 years collection period, you must still provide financial information.  If you will run out the 10 year clock before the debt is paid in full, you need a partial pay installment agreement, which is much more difficult to negotiate than a full pay agreement.  Please see the various articles on this site for more information on the installment agreement process.