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What Is the IRS "fresh Start Program"?

Michael S. Anderson Nov. 27, 2019

The IRS "fresh Start" Program May Not Be What You Think It Is

In 2011 and 2012 the IRS felt the need to make some changes in an effort to help Americans struggling with tax debt. Bankruptcy filings were up, and many people were still dealing with the effects of a serious economic downturn that began a few years earlier. These changes were primarily made to existing programs. The "fresh start" program wasn't a completely new program as many taxpayers seem to believe, even now.

What Did the IRS Fresh Start Program Actually Do?

Changes to IRS Lien Treatment

The IRS relaxed lien filing criteria. It increased the amount at which it would record a lien notice from $5000.00 to $10,000.00.

It introduced something called IRS lien "withdrawal". This was meant to help taxpayers not only remove the lien from the County Record in certain circumstances, but also to remove the history of the lien notice from the taxpayers credit report.

Learn more about IRS Lien Withdrawal here.

Lastly, in relation to IRS liens, it begin to allow taxpayers with up to $50,000.00 in assessed tax debt to avoid a new lien notice filing if the taxpayer set up a streamlined payment plan that paid the debt over time and allowed the IRS to take the payment from a bank account - auto debited. The previous threshold amount was $25,000.00 assessed. It also increased the time-frame to pay the debt back from 60 to 72 months.

Changes to IRS Full Pay Payment Plan

The IRS had always used a set of budget criteria prior to the Fresh Start Program, to determine the taxpayer's ability to pay on the debt. That budget criteria was usually applied in a strict way. The IRS wouldn't allow expenses that were outside of the IRS standards. The Fresh Start Program allowed IRS employees to use the taxpayer's actual living expenses, even when they didn't meet the standard budget, IF the IRS could be paid over 6 years/72 months or the remaining time on the collection statute expiration date - whichever was shorter. Since then, more changes have been made in relation to "full pay" installment agreements that have made it easier in certain circumstances to deal with the tax debt.

Changes to IRS Offer in Compromise

Allowable Budget Items Changes

The IRS began to allow taxpayers to include certain student loan payments, monthly payments on other tax debts (like state tax debt), and it increased the number of living expense categories it allowed and certain amounts allowed in the taxpayer's budget. These changes to the allowable budget items made it easier for certain taxpayers to qualify for an offer in compromise.

Changes to "Multiplier"

When a taxpayer "qualifies" for an IRS offer in compromise, the IRS then takes a second step and multiplies "excess" income by 12 or 24 and adds the value of assets to that number. The result if the offer settlement amount. For example:

If the taxpayer's "excess" income above the allowable budget were $250.00 per month, and the taxpayer's asset value were $10,000.00, the IRS would multiply the $250.00 by 12 and add the $10,000.00 and the taxpay could pay the resulting number, $13,000.00 to settle the debt. If the multiplier used were 24, than the taxpayer would pay $16000.00 over 24 months.

The Truth About the IRS Fresh Start Program

The IRS Fresh Start Program has helped many to avoid IRS lien notice filings, it made it easier to obtain lien filing withdrawals in certain circumstances, and it helped some taxpayers settle debt in an offer in compromise.

However, it didn't, as many believe even today, provide a new debt settlement program for those with IRS Debt. That already existed when the IRS Fresh Start program was instituted.

And...despite the fresh start program, the vast majority of Offers in Compromise filed continue to be rejected. Most taxpayers end up in some form of installment agreement with the IRS and struggle with the debt over several years as a result.