What Is the IRS Fresh Start Program?

The IRS Fresh Start Program helps taxpayers facing financial difficulties resolve their tax debts. It provides accessible options for individuals and businesses to achieve tax compliance and alleviate outstanding tax liabilities.

Understanding the Fresh Start Initiative

The Fresh Start Initiative, launched in 2011 and expanded since, is not a singular program but a series of provisions making tax resolution more attainable. It helps taxpayers manage debt through flexible payment options and penalty relief. The initiative expanded access to existing relief options, particularly the Offer in Compromise (OIC) program, making it easier for eligible taxpayers to settle tax bills. It also increased the threshold for federal tax liens and streamlined installment agreements.

Determining Your Eligibility

Eligibility for the Fresh Start program depends on your income, tax debt amount, and ability to pay. You must be current with all tax filings, meaning all required tax returns for previous years must be filed. For self-employed individuals, all estimated tax payments for the current year must also be made.

Generally, for streamlined installment agreements, your total tax debt, including tax, penalties, and interest, should be $50,000 or less. If your debt exceeds this, you might still qualify by reducing the balance.

You must also demonstrate genuine financial hardship, meaning you cannot pay your tax debts in full without compromising basic living expenses. The IRS assesses your current income, expenses, and asset equity to determine your ability to pay. Additionally, you cannot be in an open bankruptcy proceeding to qualify for these programs.

Relief Options Under Fresh Start

The Fresh Start Initiative streamlines access to existing tax relief mechanisms, notably the Offer in Compromise (OIC) and Installment Agreements. An OIC allows certain taxpayers to settle their tax debt for a lower amount than originally owed. Fresh Start broadened OIC criteria by adjusting income calculation and increasing allowable living expense deductions, making it simpler to qualify. The IRS generally approves an OIC when the proposed amount represents the maximum they can expect to collect within a reasonable timeframe.

Installment Agreements provide a way to pay off tax debt over time through monthly payments. Under Fresh Start, streamlined installment agreements allow taxpayers owing up to $50,000 to set up payment plans lasting up to 72 months. This option often comes with a streamlined approval process and reduced financial documentation requirements. While interest and penalties continue to accrue, entering an installment agreement can prevent more aggressive IRS collection actions like levies or wage garnishments.

Gathering Required Information

Before applying for tax relief under the Fresh Start Initiative, you must gather specific financial documents and complete relevant IRS forms. These forms help the IRS assess your ability to pay, and accuracy is important to prevent delays.
For individuals: Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. This requires detailed information about income, expenses, assets, and liabilities, including current bank statements, pay stubs, and documentation for all assets and debts.
For businesses: Form 433-B, Collection Information Statement for Businesses. This collects financial details on income, expenses, assets, and liabilities.
For an Offer in Compromise: Form 656, Offer in Compromise, which formally proposes your settlement amount.
For some installment agreements: Form 433-F, Collection Information Statement.

Submitting Your Application

Once all necessary forms are accurately completed and supporting documents gathered, you can submit your application. For an Offer in Compromise, the package typically includes Form 433-A (or 433-B for businesses), Form 656, a non-refundable application fee, and an initial payment. This package should be mailed to the appropriate IRS address for your state, as listed in Form 656-B, the Offer in Compromise Booklet.

For installment agreements, you can often apply online through the IRS website’s Online Payment Agreement tool for faster approval. Alternatively, submit Form 9465, Installment Agreement Request, by mail or phone. After submission, the IRS will review your application, which can take several months for an OIC. You should be prepared to respond to any requests for additional documentation or clarification during this review period.