Summary

The IRS Fresh Start Program is a collection of initiatives designed to assist individuals and small businesses in resolving their tax debts. The program includes options such as installment agreements, penalty abatements, offers in compromise, and determining if a tax debt is due. The program also allows for the withdrawal of federal tax liens after they have been released, provided certain requirements are met. The IRS Fresh Start Program aims to reduce the negative impact of tax collection practices on taxpayers and provide flexible solutions for managing tax liabilities.

Background of the IRS Fresh Start Program

With the IRS Fresh Start Program, it is easy to think the IRS is not an easy organization to deal with but there is a glimmer of hope to help with tax issues with them. The IRS is very hard to reach and speak with to discuss your tax problem especially after covid, but the IRS Fresh Start Program is a good option for a lot of people.

As background, under the Fresh Start program, most taxes are paid through withholding and estimated tax payments. When a taxpayer does not pay enough, the IRS has a group called ACS that handles balance due accounts. This group issues tax liens and levy notices. If the account balance is below $999,999 (or below $25,000 for a business), the ACS group normally handles the tax collection efforts. If the tax balance owed is greater than these limits, the account gets transferred to the field and is assigned to a revenue officer. The revenue officer would then determine the appropriate collection remedy, such as a tax lien or a wage or bank levy. The revenue officer is supervised by his or her group manager. This person is a seasoned debt collection professional who reviews levies, tax liens, appeals, and offers in compromise. The group manager is supervised by a territory and area managers, who usually do not become involved with the taxpayer unless very large amounts are owed, or there are complicated legal issues at stake.

The tax collection process can be broken down as follows:

1.  A tax bill is created from a tax return being filed or an audit being conducted.
2.  A demand for payment is made, and it is not satisfied (i.e. paid by the taxpayer).
3.  Either the IRS ACS Group, or a Revenue Officer is assigned the debt collection case and determines the collection remedy.
4.  If litigation arises from the action, the revenue officer, IRS technical advisor and the Justice Department review the case and decide of their official position of the case.

Therefore, the federal tax lien is the primary method for the IRS to collect money owed to it. They file a tax lien to protect their interest and then levy on that lien to collect money. A federal tax lien is an encumbrance on one’s property (both real and personal), but it does not result in a direct collection of tax since the monies will be realized once the property is sold, or a levy occurs, and the tax lien would be satisfied.

IRS Fresh Start Program

Under the Fresh Start program initiative, other methods to try to lower the amount of the tax debt is to study the tax debts statute of limitations on collection which is typically 10 years. It is possible that the tax debt will expire shortly (under one year), so in those cases it is often best to not file an offer in compromise since taken that step will cause the tax statute of limitations to be put on hold while the IRS evaluates the offer. In cases where the tax liability relates to a jointly filed income tax return, the IRS (and State) innocent spouse relief provisions should be reviewed to see if the taxpayer can get relief by claiming they were an innocent spouse. Under the umbrella of the innocent spouse provisions are also tax law tax relief provisions related to separating the liability between the two parties, and equitable relief.  The separate liability election for tax deficiencies is available when a joint return is filed and the parties are now divorced, legally separated, or have not been members of the same household during the preceding 12-month time. Usually when spouses meet this criterion, and the spouse requesting relief was not aware of the tax issue when they signed the income tax return, they will be granted relief. The equitable relief provisions look to all the facts and circumstances to determine if it would be inequitable to hold the taxpayer liable for the taxes due. For the IRS to consider equitable relief, the following conditions need to be med 1) the requesting spouse needs to have filed a joint income tax return, 2) there is no tax relief available under the innocent spouse or separation of liability provisions, 3) no assets were transferred between spouses as part of a fraudulent scheme, 4) the claim for relief is timely filed, 5) the liability relates to the non-requesting spouse. In determining whether to grant relief, the IRS will look at 1) marital status, 2) economic hardship, 3) level of knowledge of the filing spouse of the tax issue, and 4) your mental and physical health. In some cases, the taxpayer does not think they owe the tax debt, but the audit period has expired. In these cases, the Fresh Start Program allows for an offer in compromise based upon Doubt of Liability. This challenges the assessment itself and forces the IRS to relook at the issue to determine if you actually owe. The package requesting relief needs a detail explanation of why you do not owe.

The last major method to reduce the amount you owe is asking for a penalty abatement. Under the Fresh Start program initiative, while there are multiple penalties for the IRS to assess, there are many ways to ask for penalty relief. Under most cases the tax penalties (failure to file a return, failure to pay taxes when owed), can be bated if reasonable cause for the error can be proven. The taxpayer can first ask the revenue officer to abate the penalty, by demonstrating that there should be a reasonable cause excuse attributable to the case (i.e. a person was sick, or severe financial distress). If the revenue officer does not agree, the taxpayer can file an administrative appeal within 15 days of the notice of denial of abatement is received. If the administrative appeal is unsuccessful, the taxpayer would have to pay the amount due and timely file a claim for a refund. If the refund claim is denied, the taxpayer would then file a refund suit with the federal district court.

The first step to determine if the Fresh Start Program is for you to determine if the tax liability is due. In some cases, when the IRS prepares and files a tax return on your behalf (when you do not file one), they will use incorrect information and calculate the wrong amount of tax owed. Therefore, preparing an accurate tax will cause your income tax liability to decline and make resolving it easier. In other cases, a taxpayer does not attend an income tax audit meeting. While it is understandable why they did not want to attend, due to the stress involved, the IRS will usually just disallow all deductions which causes the tax liability to increase. By attending the audit meeting, and trying to limit the tax audit adjustment, you can also lower your tax liability this way. I had a business client who came to me with a tax debt over one million dollars. He said he owed zero. I asked why and he said he lost money in his business. This all made sense, but his accountant told him to ignore the audit meetings and just settle with the IRS. He took the advice of his accountant and ended up with a large tax bill. We contacted the IRS, and through an audit reconsideration, we were able to get the tax bill lowered to zero. Just like he thought it should be, and we avoided a complicated case by just showing our receipts!

One aspect of their collection efforts where the IRS does show kindness is when they view a taxpayer as currently non-collectible. What this means is that even though the taxpayer owes money they are unable to pay off the tax debt based on the taxpayer’s current income and expenses. From my experience, a taxpayer who makes less than $50,000 a year and has court ordered payment (such as past debts, child support) often falls within this category and the IRS Fresh Start Program can assist them greatly since the payment plan will be very low or zero per month. The tax debt still accrues interest. However, the delay buys time to submit an offer in compromise to resolve the tax problem.

The other IRS Fresh Start program option that is useful is a tax payment plan. The IRS can enter into a payment plan of up to 96 months to allow a taxpayer to pay the tax debt over that period of time. Interest and penalties still accrue so it is not an inexpensive option, and perhaps not even the best option. The payment plan can either be a direct debit, where the money is drawn from your account each month, or you make manual payments online or by sending in a check. If the tax debt is greater than $50,000 the IRS will want to file a tax lien to protect their interest. If the tax debt is below the $50,000 threshold, the IRS will usually agree that no tax lien needs to be filed, unless the taxpayer defaults the payment arrangement. There is a $5,000 penalty fee for submitting a installment agreement request that is considered frivolous or deemed to be designed to merely impede or delay collection administration, so it is best to be careful and submit the installment agreement request carefully to avoid this issue.

Fresh Start Program for Small Businesses

The Internal Revenue service also helps people and small businesses who are unable or struggling to meet their tax obligations with tax relief through a fresh start program.  In February 2011, the IRS Commissioner announced a new initiative designed to help small businesses get a fresh start with their tax liabilities.

The Fresh Start initiative was redesigned so that IRS collection practices have a lessened negative impact on taxpayers.

The IRS Fresh Start program initiative also increases the IRS Notice of Federal Tax Lien filing amount.  The previous threshold of $5,000 has been increased to $10,000 of tax debt.  The IRS will not retroactively apply the new $10,000 lien notice filing threshold and automatically withdraw a previously filed lien, the business owner will have to take this action.

Tax Lien Withdrawal

Another change to federal tax liens is that the IRS is now able to withdrawal a Notice after the lien has been released.  If business owners want to have the Notice of Federal Tax Lien withdrawn, a request must be submitted in writing.  For instance, the business owner should check the last box; “The Taxpayer, or the Taxpayer Advocate acting on behalf of the taxpayer, believes withdrawal is in the best interest of the taxpayer and the government.”

In order to be eligible to request a lien withdrawal after the lien has been released the requirements are:

• The tax liability has been met and the lien has been released
• The business is in compliance for the previous three years (at the point in time of the request) in filing all individual and business returns and all information returns
• The business is current on estimated tax payments and all federal tax deposits as they apply to the business.

IRS Direct Debit Installment Agreement

Qualifying taxpayers for the business who meet eligibility requirements can have the Notice of Federal Tax Lien withdrawn if they enter into a Direct Debit installment agreement.  As it was true for after the lien has been released, the request for lien withdrawal must be in writing. Qualifying taxpayers for a direct debit installment agreement are:

• Individual Taxpayers
• Business with income tax liability
• Closed businesses with tax debt

In order to be able to sign up for this type of IRS Direct Debit installment agreement, the business must meet eligibility requirements:

• 1. The amount of tax debt owed is $50,000 or less
• 2. The taxpayer owed more, but was able to pay down the balance to $25,000 before requesting lien withdrawal
• 3. The tax debt must be paid in full within the earlier of 60 months or before the Collection Statute expires.
• 4. Have filed all tax returns necessary and are current with tax payments
• 5. Have not received a lien withdrawal for the same taxes
• 6. Have not defaulted on any current or previous direct debit installment agreement.

Taxpayers who are facing federal tax lien issues should consult with an experienced tax attorney to assist with these matters. Negotiating and working with the IRS can be very difficult if you do not know the rules, and especially with an installment agreement, the taxpayer needs to be comfortable with the monthly payment amounts to make sure they are affordable.

Sources:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Fresh-Start-Notice-of-Federal-Tax-Liens

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