How to Apply for the Fresh Start Program

The Internal Revenue Service (IRS) Fresh Start Program offers a pathway for taxpayers facing difficulties with their tax obligations. This initiative aims to provide relief options, simplifying the process for certain individuals and businesses to address their tax liabilities. It encompasses various tools designed to help manage and resolve outstanding tax debt, allowing taxpayers to move forward with their financial lives by providing more flexible payment arrangements and avenues for penalty relief.

Understanding Eligibility

Determining eligibility for the Fresh Start Program involves assessing specific criteria related to the type and amount of tax debt, as well as current tax compliance. The program is not a single solution but a collection of options, including streamlined installment agreements and Offers in Compromise (OICs). To be considered for any Fresh Start option, taxpayers must have filed all required tax returns, often for the past six years for installment agreements. Additionally, any required estimated tax payments for the current year must be up to date.

For a streamlined installment agreement, individual taxpayers can qualify if their total tax debt, including penalties and interest, is $50,000 or less. This debt can be repaid over a period of up to 72 months through monthly direct debit payments. A key advantage of this option is that it typically does not require extensive financial documentation, simplifying the approval process. Businesses can also qualify for a streamlined installment agreement if they owe $50,000 or less and can pay it off within 72 months.

An Offer in Compromise (OIC) allows certain taxpayers to settle their tax debt for less than the full amount owed. The IRS may accept an OIC if there is doubt about the taxpayer’s ability to collect the full amount (doubt as to collectibility), or if paying the full amount would create significant financial hardship (effective tax administration). To qualify for an OIC, taxpayers must generally have filed all required tax returns and made all necessary estimated tax payments for the current year. They must also not be in an open bankruptcy proceeding.

The IRS evaluates OIC eligibility by examining a taxpayer’s income, expenses, and asset equity to determine their reasonable collection potential. This assessment ensures that the proposed offer reflects what the IRS can realistically expect to collect. For example, if a taxpayer can pay the full amount through an installment plan, an OIC application may be rejected. The program also considers special circumstances that might affect a taxpayer’s ability to pay, such as age, employment status, or medical conditions.

Required Information and Documentation

Preparing to apply for the Fresh Start Program involves gathering specific financial and personal information, along with relevant IRS forms. The exact documents and forms depend on the specific relief option being pursued.

For individuals seeking an Offer in Compromise (OIC), the primary forms are Form 656, Offer in Compromise, and Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals. Businesses applying for an OIC will use Form 433-B (OIC), Collection Information Statement for Businesses. These forms require a detailed disclosure of the taxpayer’s financial situation, enabling the IRS to assess their ability to pay.

Form 433-A (OIC) requires comprehensive information about income (such as wages or self-employment income), expenses (like housing, utilities, and medical costs), assets (such as bank accounts, investments, and real estate), and liabilities (like mortgages and loans). The IRS uses national and local standards to determine reasonable expense amounts.

Taxpayers can obtain blank forms from the IRS website (IRS.gov) or by calling 800-TAX-FORM (800-829-3676). Instructions for completing each form are typically provided within the form packet or on the IRS website. Accuracy in completing these forms is important, as the information directly influences the IRS’s decision regarding the offer amount or payment plan.

For those pursuing an Installment Agreement, Form 9465, Installment Agreement Request, is generally used to propose a monthly payment plan. While streamlined agreements often do not require a full Collection Information Statement (Form 433-A or 433-F) for debts under $50,000, a more detailed financial statement, such as Form 433-F, may be necessary for larger debts or non-streamlined agreements.

Taxpayers should also have copies of their filed tax returns for the past several years, as compliance with filing requirements is a prerequisite. Proof of identity, such as a Social Security number or Individual Taxpayer Identification Number, is also necessary. Gathering all supporting documentation, like income statements, bank records, and asset valuations, validates the information provided on the forms and strengthens the application.

Submitting Your Application

Once all required information and forms are meticulously prepared, the next step involves submitting the application to the IRS. The method of submission depends on the specific Fresh Start option. Following the correct submission procedures is important to ensure the application is processed efficiently.

For an Offer in Compromise (OIC), the complete application package, including Form 656 and Form 433-A (OIC) or 433-B (OIC), is typically mailed to the appropriate IRS facility. The specific mailing address can be found in the instructions for Form 656 or on the IRS website. Taxpayers must also include a non-refundable application fee, currently $205, which may be waived for certain low-income individuals. An initial payment, the amount of which depends on the chosen payment option (lump-sum or periodic payments), is also generally required with the application.

For a lump-sum OIC offer, 20% of the proposed offer amount must be included with the application. The remaining balance is then paid in five or fewer payments after the offer is accepted. If electing the periodic payment option, the first month’s proposed payment must be submitted with the application, and monthly payments continue while the offer is under consideration. These initial payments are generally applied to the tax debt even if the OIC is not accepted.

For Installment Agreements, applications can often be submitted online, by phone, or by mail using Form 9465, Installment Agreement Request. Online submission is available through the IRS website for qualified taxpayers, allowing for a potentially faster process. When submitting by mail, the address is typically provided in the instructions for Form 9465.

While streamlined installment agreements generally do not have an application fee, other types of installment agreements may. For non-low-income taxpayers, a one-time setup fee can be up to $225, which may be reduced to $107 if the agreement is set up through direct debit. Setting up direct debit payments is often encouraged and can offer benefits, such as potential tax lien withdrawal under certain conditions once payments begin. It is advisable to keep a copy of the entire application package for personal records before submission.

After Application Submission

After submitting an application for the Fresh Start Program, taxpayers enter a phase of waiting and potential communication with the IRS. Understanding what to expect during this period can help manage the process effectively and ensure a positive outcome. The IRS will review the application and supporting documentation, and the timeline for a response can vary.

Processing times for Fresh Start applications, particularly Offers in Compromise, can range from several weeks to several months. The IRS will typically send a confirmation notice upon receipt of the application, often providing an estimated date for contact. During the review period, the IRS may suspend certain collection activities, but interest and penalties may continue to accrue on the outstanding balance.

The IRS may request additional information or clarification regarding the submitted financial details. Promptly responding to these requests with accurate and complete documentation is important to avoid delays or potential denial of the application. Failure to provide requested information can lead to the application being returned or rejected.

If an application for an Offer in Compromise is approved, the taxpayer will receive an acceptance letter outlining the terms of the agreement. Adhering to these terms is important; this includes making all agreed-upon payments on time and continuing to file all required tax returns and pay any new taxes due for a specified period, often five years. Failure to comply with these ongoing terms can result in the OIC being defaulted, and the original, larger tax debt being reinstated. Any federal tax refunds due to the taxpayer for the year the OIC is accepted may be applied to the outstanding tax debt covered by the OIC.

Should an application be denied, the IRS will typically send a letter explaining the reasons for the rejection. Taxpayers generally have the right to appeal this decision within a specific timeframe, usually 30 days. The appeal process allows taxpayers to present their case to an independent IRS Appeals Officer. If an appeal is unsuccessful or if the taxpayer chooses not to appeal, other options for resolving tax debt, such as a standard Installment Agreement or Currently Not Collectible status, may still be available.