Posted by Fletcher Accounting and Tax Service Inc.

Breaking Down Fresh Start Initiative

Breaking Down Fresh Start Initiative

Fresh Start Initiative (FSI) was officially launched by IRS in 2011 to help American taxpayers get a “fresh start” with their tax obligations. The program’s main goal is to help individuals and small businesses pay their back taxes an avoid tax liens. This is a great program set in place to assist people who are in a painful financial problem because of their owed back taxes. It will help them get back on track with their payments and has made the tax process quicker and easier for them as well.

What were the changes made by the IRS when the Fresh Start Initiative was launched? Here is a quick break down of those changes:

1. Tax Lien Changes

  • The tax debt threshold was increased by the FSI at which the IRS will file a Notice of Federal Tax Lien. From the previous threshold amount of $5, 000 it is now $10, 000. The IRS has the right to file a tax lien on someone below $10, 000 following their own discretion.
  • The tax lien withdrawal also experienced some changes. Since the Notice of a Tax Lien publicly was eliminated, it is now easier for taxpayers to get a “fresh start” and get a tax lien withdrawn through the following ways:
  • As long as the lien was paid in full of the statute of limitations (CSED) was reached. In order to request a lien withdrawal, the taxpayer still needs to comply in filing for the past three years and must religiously pay their estimated tax payments.
  • Taxpayers can now set up a 60-month direct debit installment agreement also called as DDIA or SIA provided their balance is $25, 000 or below. The IRS will be able to deduct the monthly payment from the individual’s bank account or wages through this direct-debit agreement. The lien withdrawal can be requested after three consecutive direct debit payments.
  • If you were on a regular installment agreement but decided to convert it to a DDIA, you can also request a lien withdrawal as long as you made three successful payments.

2. Installment Agreement Changes

  • The FSI also made changes to the threshold for which a taxpayer can qualify for a Streamlined Installment Agreement. From the amount of $25, 000, it is now $50, 000.
  • For small businesses, on the other hand, tax debt amount threshold was expanded by FSI. In order to qualify, from $10, 000, the threshold is now at $25, 000. Balances above $25, 000 can be paid down by small businesses in order to qualify for a DDIA. 

3. Offer in Compromise (OIC) Changes. There were several changes made by the IRS to the financial analysis used in determining whether the taxpayer qualifies for an OIC or not. Here are the following changes:

  • Lump Sum OIC Changes. The IRS is now looking at one year of future income versus four years.
  • Short-Term Periodic. The IRS is now looking at two years of future income versus five years.

Included in the expansion of the streamlined OIC program under the Fresh Start program are the following:

  • Taxpayers earning up to $100, 000 are qualified to apply
  • Living expense allowances to include state taxes, student loans, and other obligations are now allowed or increased
  • Loans that are used to fund the OIC and other financial debts related to OIC preparation such as legal fees are now allowed with an OIC to be repaid against assets.

4. Currently Not Collectible Changes. There is no longer any enforcement actions when a taxpayer is under this status. In general, the individual must provide enough documentation to the IRS in order to justify this status. Because of the FSI, the process has become easier for taxpayers owing $10, 000 or less to qualify for a CNC by calming down documentation requirements.

Now that you’re aware of the changes made under the Fresh Start Program, how do you exactly apply for it?

Allow us to first clarify that the Fresh Start Program is not an actual program. It’s a collection of laws aimed to make it easier for taxpayers to resolve their tax debts. There are different ways to apply for a fresh start and the process that you need to go through depends on whether you qualify for an installment agreement, a business installment agreement, an offer in compromise, or currently not collectible status. You will also have to meet the following criteria in order to qualify:

  • Filing requirements are up to date
  • Current with estimated quarterly tax payments if you are self-employed
  • If you’re a small business owner, has made all federal tax deposits such as payroll tax, sales tax, and other related taxes.
  • Not in bankruptcy

As much as the Fresh Start Program can help you in your tax obligation, it can also be very overwhelming if you’re not familiar with all the regulations that you need to follow. It's best to consult a tax professional who has the experience and knowledge in dealing with taxes and tax resolution options that may help you with your financial situation.

Fletcher Accounting and Tax Service Inc.
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