The IRS "Fresh Start" Program

Despite the many ads you may have seen, the "Freeh Start" Program is not new. The IRS launched

the Fresh Start initiative in 2011. The IRS designed this program to help struggling tax payers by

providing more flexible terms for paying back taxes and reducing penalties. One of the key aspects

of the Fresh Start initiative was to make it easier for individuals and small businesses to set up

installment agreements and offer in compromise agreements. It also increased the threshold for IRS

liens and adjusted other policies to alleviate the burden on taxpayers facing financial difficulties.

The initiative represented a significant shift in the IRS's approach to tax debt, aiming to assist rather

than penalize taxpayers struggling to meet their obligations.

Applying for the Fresh Start Program can be complex, and the specific forms and requirements can

vary depending on your situation. If you wish, I can help you select the best option for your

circumstances and file your application correctly.

However, I know some of you may wish first to want to look into doing the Fresh Start Program on

your own, so here is how to do it:

     Applying for the IRS Fresh Start Program

Note: For the IRS to consider you for the Fresh Start Program, you must have filed all of your tax

returns.

Determine Eligibility: First, determine which part of the Fresh Start Program you're eligible for. The

main options include Installment Agreements and Offers in Compromise.

Gather Financial Information: You'll need detailed financial information, including income,

expenses, asset equity, and liabilities.

      Choose a Payment Option

• Installment Agreement: If you owe $50,000 or less in combined tax, penalties, and interest, you

can apply for an Installment Agreement online. If not applying online, use Form 9465,

"Installment Agreement Request."

• Offer in Compromise (OIC): The IRS accepts about 1 in 4 offers. There may be better choices.

The tax payer must submit 20% of the offer when submitting the OIC. If the IRS does not accept

your offer, it will keep your 20% and apply it to the taxes you owe. Don't despair because a

partial pay installment agreement may give a more favorable result with the same facts of your

situation.

• The formula for an Offer in Compromise involves several factors:

Reasonable Collection Potential (RCP): This is the core of the formula, and it represents the

IRS's estimate of the tax payer's ability to pay. The RCP includes the value of your assets (like

real estate, vehicles, bank accounts) plus your future income minus certain amounts allowed for

basic living expenses.

Future Income: The IRS will calculate your future income over a certain period (usually 12 to 24

months). That result is your monthly income minus allowable living expenses. The time frame

depends on the payment terms of the OIC.

Living Expenses: The IRS allows for basic living expenses based on national and local standards.

These include food, clothing, housing, transportation, and other necessary expenses.

Asset Equity: The IRS calculates the equity in your assets. The result is generally the quick sale

value (usually 80% of fair market value) minus any money owed on the asset.

The general formula for an Offer in Compromise is:

Offer Amount = (Asset Equity) + (Future Income)

Each OIC is unique; the IRS will consider your entire financial situation. It's important to note that

the IRS will only accept an OIC if they believe the offer is equal to or greater than what they could

collect through normal collection processes within a reasonable period.

• Nonetheless, if you can't pay your entire tax liability or doing so creates a financial hardship, an

OIC may allow you to settle for less than the amount owed. Use Form 656, "Offer in

Compromise," and Form 433-A (OIC), "Collection Information Statement for Wage Earners and

Self-Employed Individuals" or Form 433-B (OIC), "Collection Information Statement for

Businesses." Mail the completed forms along with the required documentation

    Determining Payment Amount

• For an Installment Agreement, the amount you can pay each month is generally based on what

you can afford after determining for your essential living expenses as defined by the IRS.

• Offer in Compromise Formula: Potential (RCP), In addition to form 656. Submit detailed

financial information using Forms 433-A (OIC) or 433-B (OIC). The IRS uses this to determine

your ability to pay.

Key Points

• Always ensure that your tax filings are up to date before applying.

• The IRS provides tools and pre-qualifiers on their website to help you understand your eligibility

and potential options.

Applying for the Fresh Start Program can be complex, and the specific forms and requirements can

vary depending on your situation. It's often beneficial to seek help from tax professionals to ensure

that you choose the best option for your circumstances and that your application is accurate. Call

Charles Elwis at 817-455-3487