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Personal Finance Tax Relief

IRS Fresh Start Program: What It Is & Who Qualifies

Updated Jun 16, 2023   |   5-min read

Having high amounts of tax debt can weigh you down financially and mentally. But the IRS offers several options to help you rise above, 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 what you need to know about the program.

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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.

The program:

  • Increased the threshold at which federal tax liens are issued. Now, tax liens are only filed if a taxpayer owes $25,000 or more.
  • Expanded access to installment agreement plans, which let taxpayers pay their debts off over time. Taxpayers with debts up to $50,000 can now 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 Taxpayers can have liens withdrawn by setting up a payment plan or paying their debt in full.
  • Streamlined the Offer in Compromise program and made it easier to qualify. 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. The agency also recently launched the People First Initiative as a result of the COVID-19 pandemic.

Who qualifies for the IRS Fresh Start Initiative?

The IRS Fresh Start initiative isn’t a single offering. Instead, it’s expanding on existing programs, including the Offer in Compromise program and the Installment Agreement program. Both of these programs can allow you to repay your tax debts without further consequence.

Here are the requirements for each:

Installment agreement

  • Maximum tax debt
    • Business owners: $25,000
    • Individual, long-term plan: $50,000
    • Individual, short-term plan: $100,000
  • Setup fee
    • Business & long-term: $31 to $149
    • Short-term: $0
  • Tax status: All tax returns must be current and filed
  • Payment details
    • Business: Direct debit required on balances over $10,000
    • Individual: Direct debit required on balances over $25,000

Offer in Compromise

  • Maximum tax debt: None, but no open bankruptcy proceedings are allowed
  • Setup fee: $205
  • Tax status: All tax returns must be current and filed. Estimated tax payments for the current year must have been made
  • Payment details: Must pay via lump sum (at least 20% of the total offer upfront) and the remaining in five or fewer payments within five months, OR First payment with the offer and the remaining balance in monthly payments for 6 to 24 months

Benefits & downsides of the Fresh Start Program

There are significant benefits to the Fresh Start program. For one, it lets you settle your tax debt without a huge upfront payment. On both offers in compromise and installment plans, you can spread the costs of your debt out over several months or even years.

Another perk is the high debts that are allowed. They mean that no matter how far in debt you’ve fallen, there is still an option to rise above and come out on top.

On the downside, the programs come with fees, and many options require direct debit payments, which could be problematic if you’re dealing with financial hardship. For businesses, maximum debt thresholds are much lower, so business owners may not have as many options.

Pros

  • Spread your debt payments out over time

  • Large maximums for individuals

  • Have your tax liens withdrawn

Cons

  • Stricter requirements for business owners

  • All your returns must be filed and current

  • You may need to set up direct debit payments

  • Application and setup fees

How to apply for the Fresh Start Initiative

To apply for either an Offer in Compromise or an installment plan, you’ll need to work directly with the IRS. For offers in compromise, you’ll need the IRS Form 656 Booklet. For installment plans, you may be able to apply online.

You can also hire a tax relief company to help leverage the Fresh Start program or pursue other options for settling your tax debts. For an idea of where to start, check out our guide to the best tax relief companies.

IRS Fresh Start Initiative FAQs

Why did the IRS start the Fresh Start program?

The agency started its Fresh Start initiative to help struggling taxpayers and businesses—the program launched in 2011 and has expanded several times since.

What is collection potential?

Collection potential is how much the IRS believes you’re able to pay. 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 look at your assets (your car, bank accounts, house, etc.) plus your future projected income, minus reasonable living expenses.

How long does the program take?

It usually takes at least a few months for the IRS to evaluate an Offer in Compromise. You’ll typically know for installment agreements within a couple of weeks if your application has been approved.

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

That’s up to you. Having a professional tax relief firm handle your request may help your chances of success, but it will also come with a fee. Many tax relief companies also require minimum tax debts, so you’ll want to be sure you fall in line with these before you spend any extra cash.

Most of these tax relief companies offer free consultations. If you’re unsure whether you meet the requirements to work with one of these companies, a consultation can help figure that out.

The bottom line

The IRS Fresh Start initiative offers a few options if you’re dealing with tax debt. If you’re unsure it’s the right choice, consider consulting an accountant or tax professional before moving forward and consider all of your tax resolution services.