IRS Fresh Start Program: What It Is & Who Qualifies

High amounts of tax debt can make it difficult to get ahead. However, the IRS offers several options to help, including the Fresh Start program.

The program, launched in 2011, allows you to settle your back tax debts while avoiding severe penalties and consequences. Here’s everything you need to know about the program.

What is the IRS Fresh Start program?

The Internal Revenue Service (IRS) launched the Fresh Start program in 2011 as a way to help individuals and small business owners struggling to pay their taxes.

It instituted changes in the tax lien system and made tax relief programs more accessible. Specifically, the Fresh Start program:

• Increased the federal tax lien threshold. The IRS only files tax liens if a taxpayer owes $25,000 or more.
• Enhanced access to payment plans: Fresh Start expanded access to installment agreement plans, which lets taxpayers pay off debt over time. Taxpayers with debts up to $50,000 can qualify. Installment plans go as long as six years.
• Made it easier to remove liens: Taxpayers can have liens withdrawn by setting up a payment plan or paying their debt in full if their balance is below $25,000.
• Improved the Offer in Compromise program: This program allows taxpayers to settle their tax debts with a payment less than they owe.

The IRS Fresh Start program has been expanded several times over the years, including offering penalty relief for unpaid taxes to an additional 4.7 million taxpayers in 2023.

Who qualifies for the IRS Fresh Start initiative?

The IRS Fresh Start initiative expands existing programs, including the offer in compromise program and the installment agreement program. Here’s how the programs work and the requirements to qualify.

Installment agreement

	Individual	Business
Max. tax debt	$50K for long-term plan; $100K for short-term plan	$25,000
Setup fee	$0 for short-term plan; $31 – $225 for long-term plan	$31 – $225
Tax status	All tax returns must be current	All tax returns must be current
Payment details	Direct debit required on balances over $25K	Direct debit required on balances over $10K

Installment agreements are payment plans that allow you to pay off your debt over an extended period. For example, imagine you owe $10,000. You might be able to set up an installment agreement to pay off your balance over five years with payments that are less than $200 per month.  

The IRS offers two installment agreements: short-term and long-term. Short-term plans last for 180 days or less. Long-term plans, on the other hand, require monthly payments for multiple years. 

Offer in compromise

	Individual and business
Max. tax debt	None
Setup fee	$205
Tax status	All tax returns must be current and estimated tax payments must be made
Payment details	Pay as a lump sum or first payment with offer and remaining balance as monthly payments for 6 – 24 months

With an Offer in compromise, you can settle your tax debt for less than you owe. You might want to consider the program if you can’t repay the entire amount or will experience financial hardship if you do. 

To qualify, you must file your tax returns, make estimated tax payments, and have an extension if you’re applying for the current year. Once you reach a compromise, you can repay your adjusted balance as a lump sum or make monthly payments for up to 24 months. 

Benefits & downsides of the Fresh Start program

The IRS Fresh Start program is a solid option for some taxpayers, but not everyone since you typically have to pay a setup fee and have direct debit payments. 

Pros

• Spread out repayment over time

  You can repay your debt over several months or years, which makes it more manageable. 

• Large maximums for individuals

  Both programs have high debt maximums, including an unlimited maximum for the Offer in Compromise. The high maximums ensure it’s never too late to repay the debt. 

• Withdraw your tax lien

  The program makes withdrawing tax liens from your record easier, allowing you to recover faster and move on. 

Cons

• Returns must be current

  You must file your tax returns to qualify for the Fresh Start programs, so they are not a great option for borrowers behind on taxes.

• Might need to set up direct debit payments

  Many options require direct debit payments, which could be problematic if you’re dealing with financial hardship.

• Application and setup fees

  The programs have application fees, which can add an extra cost and might make the programs inaccessible for some borrowers. 

How to apply for the Fresh Start initiative

To apply for an Offer in Compromise or installment plan, you must complete the steps outlined by the IRS. Here’s how the process works.   

Offers in compromise

1. Complete the application: You must fill out the IRS Form 656 Booklet. 
2. Select a payment plan: You can pay in a lump sum or monthly installments and must decide before applying. 
3. Application fee and payment: Your application must include the $205 application fee and your initial offer payment. 
4. Wait for a response: The IRS will review your offer and respond with information about whether it was accepted or rejected. If it’s rejected, you can apply for appeal. 

Installment plans

1. Determine your payment plan: You can choose a short-term payment plan that lasts for 180 days or a long-term payment plan that lasts for at least a year. 
2. Apply for the program: Depending on your chosen plan and how much you owe, you must apply for the mail by submitting Form 9465 or online through the Online Payment Tool Agreement. 
3. Pay the application fee: Short-term payment plans do not have application fees, fees for long-term plans range from $35 to $225. 
4. Wait for a response: The IRS reviews your application and responds with the next steps. 

You can complete the application process on your own or you can hire a tax relief company to help leverage the Fresh Start program to settle your tax debts. For an idea of where to start, check out our guide to the best tax relief companies.

The Fresh Start Program is user-friendly—if you need assistance, I suggest starting with a knowledgeable and trustworthy friend or family member.

Erin Kinkade

CFP®

IRS Fresh Start initiative FAQ

Why did the IRS start the Fresh Start program?

The agency started its Fresh Start initiative to help struggling taxpayers and businesses. It also helps the IRS collect more outstanding balances by making it easier for taxpayers to repay them. 

What is collection potential?

Collection potential is how much the IRS believes you can pay based on your assets. The IRS uses collection potential to determine how much it will accept as an Offer in Compromise.

How is collection potential calculated?

To determine your collection potential, the IRS will examine your assets, including your car, bank accounts, and property. The IRS also considers your future projected income, minus basic living expenses.

How long does the program take?

It often takes at least a few months for the IRS to evaluate an Offer in Compromise. For installment agreements, you will typically know whether your application is approved within a couple of weeks.

Should I apply on my own or call in a pro?

Whether to work with a tax professional is a personal decision. Working with a professional tax relief company may increase your chance of success, but it will also come with a fee. 
Most tax relief companies offer free consultations. A consultation can help determine if it’s the right fit.