3 Ways to Be Eligible for the IRS Fresh Start Program

November 19, 2021 by Karen Reed, EA
Fresh Start Ahead

If you’re struggling with back taxes and worried about getting (and staying) up to date with your tax payments, you may be able to qualify for assistance under an IRS initiative called Fresh Start. The IRS Fresh Start program offers tax debt options that make it easier and less burdensome for individual and small business taxpayers to get caught up on their back taxes. The most popular provisions of the program are the extended installment agreement, the expanded and simplified Offer in Compromise (OIC), and two kinds of tax lien relief. Each of these opportunities to take care of your tax debt comes with its own eligibility requirements, which we will explore below.


The Extended Installment Agreement


moneyThe most popular option under Fresh Start is likely the extended installment agreement, which enables you to pay your tax debt over a period of up to six years. The IRS determines an affordable monthly payment amount based on your reported assets and income. When you take advantage of this opportunity, you do not have to worry about incurring additional penalties and interest—nor do you have to lose sleep wondering if the IRS will garnish your income or put a lien on (or seize!) your property. This is because the IRS suspends these activities while the installment agreement is in place and current.

The extended installment agreement is for taxpayers who owe $50,000 or less in back taxes. If you owe more than this amount, you can pay your debt down to the eligible amount to qualify for the provision, if that’s possible for you. If the amount you owe is significantly above $50,000—and you are unable to pay it down to $50,000—you can still apply for an installment agreement. Keep in mind, however, that the process for applying for an installment agreement for amounts above $50,000 is much more complicated. You will need to negotiate your agreement with an IRS collections staff member rather than having your agreement approved quickly through the streamlined process, and they will require detailed information about your assets, income, and expenses. To be eligible for an extended installment agreement, you must also have filed all of your required federal tax returns and made all of your required estimated payments.


Offer in Compromise


OICAnother option under Fresh Start is the Offer in Compromise (OIC). An OIC allows you to settle your tax debt for an amount that is less than what you owe. And while there has always been an OIC option for those struggling with tax debt, the Fresh Start program made it available to an expanded group of taxpayers by providing the IRS more leeway with regards to determining who can qualify.

Generally, the IRS will not accept an offer in compromise request if you have the ability to pay your tax debt in full, either through an installment agreement or if you have equity in assets that could satisfy the debt. To be eligible for an offer in compromise, you must have filed all of your required federal tax returns and made all of your required estimated payments. If you are self-employed and have employees, all of your required federal tax deposits must be submitted. In addition, you must not be in an open bankruptcy proceeding.

The process for applying for an offer in compromise is complicated and requires detailed information about your assets, income, and expenses. To apply, the IRS requires that you complete Form 433-A (OIC) Collection Information Statement for Wage Earners and Self-Employed Individuals (or 433-B (OIC) Collection Information Statement for Business). Be prepared to provide the value of your bank, brokerage, investment, and retirement accounts as well as any other property and assets you own, including cryptocurrency and collectibles. Your income, loan amounts, and monthly expenses also need to be reported and are used to calculate the amount you can afford to pay.

You will be required to select a payment option and submit your first payment with your application. The IRS will apply your payment to your tax debt whether or not they return your application to you due to unfiled federal tax returns or unpaid estimated payments. If you choose the periodic payments option, you must continue to make monthly payments while the IRS evaluates your offer.


Two Kinds of Tax Lien Relief


10kUnder the Fresh Start initiative, the tax debt threshold amount for filing a tax lien notice was increased from $5,000 to $10,000, which means that the IRS will not generally issue a Notice of Federal Tax Lien on tax debt amounts below $10,000. A second provision of Fresh Start relating to tax liens is the option to enter into a Direct Deposit Installment Agreement (DDIA) to stop the IRS from putting a lien on your property. To have the IRS withdraw a Notice of Federal Tax Lien (NFTL), you must enter into a 60-month direct installment agreement—and once you have made three payments via direct installment, you may request that the IRS withdraw the lien.

To be eligible for the DDIA provision, your tax debt about must be $25,000 or less. You cannot have had any previous lien withdrawals, with the exception of a lien withdrawal associated with an improper NFTL filing. And as with the other provisions, you must be current with your tax filings and payments.

The Fresh Start initiative was designed to alleviate some of the stress and complexity that goes along with arranging to pay your back taxes. But handling your tax debt on your own can still cause anxiety and confusion, which is why we are here to help you figure it all out. A tax professional from TaxAudit can help you determine the best plan of action for your unique situation. We can help you set up an affordable payment plan, remove penalties, and possibly even lower your tax debt through an offer in compromise.

Whether you work with a professional or take a DIY approach to determining your eligibility for the various Fresh Start options, the most important thing is that you respond immediately to any IRS letter or notice you receive. The longer you wait, the more likely it is that penalties and interest will accrue, causing you more stress in the long run. Acting quickly to clear your tax debt will give you the fresh start you are looking for and a clean slate for setting and achieving your future financial goals.

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Karen Reed, EA


During her years as an audit representative for TaxAudit, Karen successfully defended the company’s members throughout the entire federal and state audit processes, handled cases assigned to US Tax Court, and developed procedures to make the audit process easier for taxpayers. Karen attributes a great deal of her tax acumen to the six tax seasons she spent as a return reviewer, analyzing thousands of returns. Responding in writing to questions from taxpayers, she became familiar with the common mistakes self-preparers make. Karen was previously the manager of the Tax Education and Research Department and the Director of Communications at TaxAudit. Her tax advice has been featured in U.S. News and World Report, the Los Angeles Times, the Chicago Tribune, and other publications.


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