Navigating the maze of tax debt can be an overwhelming process. Fortunately, the Internal Revenue Service (IRS) offers a beacon of hope to those burdened by outstanding tax debts in the form of the Fresh Start Program. This program can help taxpayers in difficult financial situations settle their debts and avoid severe penalties. But what does this program entail, and how can you take advantage of it?
Here’s a quick guide to the IRS’ Fresh Start Program.
Check For An Offer In Compromise
The first thing you should do when considering the Fresh Start Program is to check for an offer in compromise (OIC). An OIC allows you to settle your tax debt for less than the full amount you owe, particularly if paying the full amount would result in financial hardship.
The IRS considers factors like income, expenses, asset equity, and your ability to pay when determining eligibility for an OIC. If approved, this could significantly reduce your tax burden.
Installment Agreement
If you owe $50,000 or less in taxes, you might be eligible for a streamlined installment agreement. Under this agreement, you can pay off your tax debt in monthly installments over a period of up to 72 months. This arrangement provides taxpayers with the flexibility to manage their tax debt over time, making the process less daunting.
Increase In The Tax Lien Threshold
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Before the implementation of the Fresh Start Program, the IRS could file a Notice of Federal Tax Lien for any unpaid tax debt of $5,000 or more. However, this threshold has been increased to $10,000. This change decreases the chances of having a lien filed against your property, preventing further financial complications.
Penalty Abatement
The IRS can impose penalties on unpaid taxes, which can add up quickly and exacerbate your tax debt.
However, under the Fresh Start Program, you can apply for penalty abatement if you have a reasonable cause for not paying on time. These reasons could include serious illness, unavoidable absence, or incorrect tax advice. If approved, the IRS can remove the penalty, reducing your overall tax debt.
Innocent Spouse Relief
Sometimes, a spouse might find themselves burdened with tax debt due to the actions of their partner. If you can prove that you were unaware of your spouse’s tax evasion or inaccurate tax filings, you could apply for Innocent Spouse Relief. This provision can absolve you from the responsibility of paying the tax debt.
Partial Payment Installment Agreement
If you’re unable to meet the minimum payments of a standard installment agreement, the Fresh Start Program offers a Partial Payment Installment Agreement (PPIA). Under a PPIA, you can pay a smaller monthly payment towards your tax debt, and after the agreement term, the remainder of the tax debt may be forgiven.
Tax Counseling
The Fresh Start Program also provides free tax return preparation for qualifying taxpayers. This program is particularly beneficial for those with low income, elderly taxpayers, and individuals with disabilities. It’s an excellent resource for individuals who need assistance navigating their tax situations.
Extension Of Time To Pay
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Under certain circumstances, such as significant hardship, the IRS may grant an extension of time to pay your tax debts. This provision can give you the extra time you need to gather funds and avoid severe penalties and interest.
Currently Non-Collectible Status
If your monthly income barely covers your living expenses, the IRS might declare your account as Currently Non-Collectible (CNC). This status means the IRS temporarily pauses collection efforts, giving you a respite from the stress of owing taxes. However, this doesn’t mean your tax debt is forgiven; it just provides some breathing room while you figure out your next steps.
Fresh Start Program For Small Businesses
The Fresh Start initiative isn’t only for individuals; it’s also open to small businesses, including those with employees. Businesses that owe $25,000 or less in payroll taxes may qualify for an In-Business Trust Fund Express Installment Agreement.
This option allows businesses to pay off their debt in installments over 24 months, making it easier for small businesses to manage their tax obligations without jeopardizing their operations.
Expedited Processing Of Installment Agreements
The Fresh Start Program has put measures in place to expedite the processing of installment agreements for taxpayers who owe $100,000 or less. This provision is a significant relief because, traditionally, taxpayers who owed more than $50,000 had to provide a significant amount of financial information and might have had to wait for months for approval.
With expedited processing, taxpayers can set up their installment agreements more quickly and efficiently, providing immediate relief from the stress of tax debt.
In Conclusion
The IRS’ Fresh Start Program offers a plethora of options to manage and potentially reduce your tax debt. From checking your eligibility for an Offer in Compromise to setting up an installment agreement, applying for innocent spouse relief, or even securing Currently Non-Collectible status, these options provide relief and a path toward financial stability.
Small businesses also have options under this program, offering support to entrepreneurs navigating tax obligations. If you’re grappling with tax debt, understanding these options is crucial. Seek professional advice if needed, and remember, a fresh start is always possible.