While every tax situation is different and requires a unique, specialized approach, the following options exist under the Fresh Start Initiative, and they could be right for you.
1. Increased the Tax Lien Limit
When the effects of the 2008 recession started to show themselves, a lot of people owed the IRS. Among other issues, this high volume of tax issues made it difficult for the government to act on each offense. So the IRS increased the amount taxpayers can owe before they issue what’s called a Federal Tax Lien. This limit was increased from $5,000 to $10,000.
As mentioned before, each tax situation is unique, and the IRS still has the ability to issue a federal tax lien before the $10,000 limit is met. What might impact their decision to file a lien is whether or not you’re enrolled in a payment plan; this shows your commitment to squaring up with the government. However, if you owe more than $50,000, you can bet that the IRS will be issuing a lien regardless of your payment plans.
Eventually, once your tax debt is paid in full (or if you’re in good standing and have enrolled in an installment agreement), the federal government can withdraw your tax lien, which will help your credit score and enable you to once again take out loans.
You may need to file Form 12277 with the IRS in order for your tax lien to be lifted.
Bear in mind that carrying a federal tax lien can affect your ability to:
Take out a loan
Sell or transfer property
Of course the IRS will provide you with ample notice before they issue a lien, and the best option is to avoid it all together by paying your taxes, penalties, and interest, or enroll in an installment agreement before your debt gets out of control.
2. Enabled Greater Flexibility With Installment Agreements
Another feature of the Fresh Start Initiative is the ability to enroll in an installment agreement. Now, under the Fresh Start Initiative, you can pay up to $50,000 in tax debt through a Streamlined Installment Agreement (SLIA) over the course of 72 months—that’s six years of paying down your tax debts.
A special note on your tax debt in this scenario: that $50k in debt is the aggregate of the assessed taxes you owe, plus any assessed interest or penalties. This does not include accrued interest or penalties. You can get a good idea of the minimum payment due with some simple math: take your tax debt + assessed interest/penalties and divide it by 72.
As mentioned above, if you qualify and are enrolled into an SLIA, the IRS might not issue a federal tax lien.
If you owe more than $50,000, then your best bet might be to pay down your debt as quickly as possible to reach $50k. This will enable you to apply for an SLIA, and it might help you avoid a tax lien, depending on your circumstances.
To apply for an installment agreement, you would file Form 9465.
3. Expanded the Offer In Compromise Program
Finally, under the Fresh Start Initiative, the IRS made the Offer in Compromise program more accessible. According to irs.gov, “An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed.”
The Fresh Start Program expanded the OIC program, creating more flexibility when assessing a taxpayer’s ability to pay. That means the IRS takes a look at your assets, income, and expenses to determine your ability to pay your tax debts.
As you might expect, the IRS requires you to complete Form 433-F, 433-A, or 433-B (a Collection Information Statement based on your situation) in order to determine your ability to pay. Your ability to pay is defined as the amount you’re able to put toward your tax balance, so it’s important to be candid in listing your assets (home/property, vehicles, bank accounts, etc.), income, and expenses.
The requirements to qualify for an OIC include having filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
When the IRS calculates your ability to pay, they’ll also calculate your reasonable collection potential (RCP), which includes “the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income-less certain amounts allowed for basic living expenses.”
Learn more about IRS OICs by visiting this summary page. Note that many who apply for an Offer in Compromise are denied based on the information provided.
What do I do next?
Your decision to pursue any of the Fresh Start Program options listed here is based on your unique tax situation and financial situation. Likewise, your ability to qualify is also based on your situation. The key takeaway is knowing that the IRS is willing to work with you in order to get you tax debt-free.
However, it’s important to be proactive with your taxes and payments, as the IRS Fresh Start Program is not intended to be a failsafe. Moreover, being in good standing with your taxes is smart for all individuals and businesses, as your ability to increase your income, obtain loans, and access credit is impacted by your standing with the IRS.
Your best bet is to reach out to your tax relief professional and seek expert guidance for how to proceed. The tax relief specialists at Heartland Tax Solutions are always ready to review your situation and work on your behalf to get you back in the black with the IRS.