You've worked hard, but for whatever reason, you find that your tax debt cannot be paid on time and you don't know how to resolve it.
Owing the IRS for back taxes is a nightmare you never thought you would take part in. Yet, here it is. The penalties are accumulating and the threatening letters have arrived.
You're not alone. The IRS collects millions from taxpayers in penalties for failure to pay. Yet, many taxpayers are unaware that the IRS does have programs to help you get back on track.
Curious about the IRS Fresh Start Program? Check out our informative article for a helpful overview of what you need to know.
What Is the IRS Fresh Start Program?
In 2008, The United States experienced a housing crash. Even before the official declaration of a financial crash, many homeowners were struggling with inflatable interest rates on mortgages and finding themselves in financial distress.
The IRS started The Fresh Start Program in 2008 as an initiative to help its citizens who were struggling to pay taxes.
The Fresh Start Program was expanded in 2012 to offer more assistance for the unemployed and businesses that were still recovering from a struggling economy that began with the housing crash.
In simplest terms, The Fresh Start Program offers a few options for individuals and businesses to pay off back taxes over time. Each option has specific requirements and regulations that must be met in order to participate in this tax relief program.
Ways to Settle Back Taxes
First, understand that although sorting through forms and filing procedures can feel very cold and frustrating, the IRS is run by people. It is not a machine.
These are people who have financial responsibilities, too. If there is a reasonable way to assist you in legally reducing your tax burden or offer payment plans, the IRS wants to do it.
With that said, working with the IRS is challenging. If you have ever tried to file your taxes on your own, you know it is time-consuming and often confusing.
Much of the difficulty in trying to resolve a tax problem on your own is due to legal terminology that requires some study and knowing which forms to file correctly.
Now imagine negotiating your back taxes on your own. This article is intended to give you a basic understanding of your options, but it is strongly recommended that you consult with a tax professional who has experience with forms and filing requirements.
Extended Installment Plan
This is a repayment agreement that allows you to pay off your tax debt in monthly payments. It is designed for people who owe $50,000 or less in taxes. With an extended installment plan, taxpayers have up to 6 years to make payments until the balance is paid in full.
The amount of monthly payment will depend on the total back taxes and accrued interest. You will also have to file financial disclosures so that an affordable monthly payment can be determined for your situation.
Businesses that owe less than $25,000 in combined taxes, interest, and penalties are also eligible to apply for an extended installment plan called an In Business Express Installment Agreement.
There are filing fees for this type of repayment plan. You may have options to negotiate penalty payments and halt tax liens.
Short Term Streamlined Repayment Plan
If you owe back taxes but will be able to pay them in a shorter extension time than 6 years, you can enter a direct debit plan for up to 180 days.
Businesses that owe between $10,000 and $24,999 are enrolled in a short-term Direct Debit Installment plan. You must have employees to be eligible.
Having monthly payments directly deposited with the IRS from your bank will help keep you on track and avoid default on your repayment plan. There are also reductions in fees and penalties by entering into a short-term direct debit plan.
Offer In Compromise (OIC)
There are situations in which a taxpayer may not be able to pay the full amount owed within 6 years. There is no limitation on the amount of tax owed to apply.
An OIC agreement is complicated and requires extensive filings and documentation to prove that your financial hardship is so severe that full repayment in full is not possible.
In this case, the taxpayer fills out application forms with financial documentation. In the application, an offer is made. This is your offer of what you can pay when filing for a reduction in the total tax debt owed.
Through filings for tax debt relief, it may be determined that your tax debt is uncollectible at this time.
This is an extreme circumstance in which you are unemployed and have no assets, suffering a major illness with large medical bills, or any other situation in which you are barely affording your most basic needs and cannot pay on the tax debt.
If your tax debt is filed as an uncollectible status, that does not mean that the debt is forgiven.
Once you are earning income again and/or acquiring assets, you will be expected to pay your back taxes. Then, you may be able to negotiate with the IRS on repayment plans.
How Can You Qualify for Tax Relief?
Before you can begin to apply for payment plans or an OIC through the IRS Fresh Start Program, you must be in compliance. The following outlines your steps to qualify for tax relief.
To qualify for a repayment plan under the guidelines of The IRS Fresh Start Program, your tax debt must be under $50,000. This does not include an OIC. An Offer In Compromise can be submitted for any tax amount.
Businesses are also eligible to apply if they owe less than $25,000 and are able to meet monthly payments. The business must have employees.
- First Time Delinquent Tax Payer
In order to receive some of the benefits given under repayment agreements, you must not be a repeat offender. This means opportunities to apply for removal of Federal Tax Liens and penalties will not be given.
- Tax Filings Are Up To Date
This means that all of the years that have not been filed must now be up to date regardless of your ability to pay. The IRS will not accept an application for The Fresh Start Program until all filings are complete and accurate.
- Maintain Compliance For 5 Years
If you are approved for an installment plan or OIC, you must continue to pay your taxes on time for the next 5 years.
If you fail to pay on time within 5 years, the IRS has the authority to find you out of compliance and reinstate the full amount previously owed. This includes the full-back tax, penalties, and interest.
Why Should You Consult With a Professional Tax Service?
The fact that you do owe back taxes and have not been able to resolve the amount owed and return to compliance with the IRS is a serious problem.
It may make you feel that you are in over your head. In truth, you are.
Gathering all of your necessary documents to file previous years' returns, following guidelines for late filing fees, and determining the correct forms to submit are going to be a lot of work and study on your part.
What happens if you submit forms incorrectly? Have you had tax notices reviewed to see if they are accurate? What if you enter into an agreement and do not fully understand the requirements and then default?
A professional who is experienced with various tax relief programs can help you to negotiate your tax debt with the IRS in a manner that is done right.
Knowing the law and your rights under tax relief is important to avoid future problems.
A qualified CPA can assist you with financial planning that keeps you on track. They can also help you with further negotiations if you fail to meet deadlines in your repayment agreement.
Get Expert Advice For Applying to the IRS Fresh Start Program
Getting behind in filing your taxes or being unable to pay the full amount of your tax debt on time is a situation that happens to millions of Americans. It is a stressful problem because of legal terminology that most of us cannot figure out on our own.
This article has outlined some of the repayment options you may be eligible for with The IRS Fresh Start Program. There are both immediate and long-term requirements that must be met to qualify.
Keith L. Jones, CPA specializes in IRS tax debt relief, tax resolution, and back tax filing. There is a no-cost obligation with your consultation.
Get your financial freedom back. Gather your tax documents and any IRS notices and make an appointment today.