IRS – Fresh Start Initiative
By Steven A Leahy
In 2011, the IRS implemented a new program to help taxpayers pay back taxes and avoid tax liens. The IRS calls this new program the Fresh Start Initiative. “This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years,” Said former IRS Commissioner Doug Shulman. “It is part of our multiyear effort to help taxpayers who are struggling to make ends meet.”
The “Fresh Start” initiative changed several important IRS programs. The program was directed to help taxpayers with installment agreements, Offers-in-Compromise & tax liens. The Fresh Start initiative expanded streamlined installment agreements. Installment agreements allow taxpayers to pay the IRS over time. Streamlined agreements remove the cumbersome disclosure requirements that normally apply to IRS installment agreements. The IRS program increased the threshold for total tax debt from $25,000.00 to $50,000.00. The number of installments acceptable from the IRS was increased from 60 months to 72 months. These two changes provide much relief to a very large number of taxpayers.
The Fresh Start initiative also changed the Offer-in-Compromise program. An Offer-in-Compromise is an agreement that allows taxpayers to pay less than the full amount due in order to settle their IRS obligation. The initiative gave the IRS more flexibility when calculating a taxpayer’s “reasonable collection potential.” The amount the IRS will accept for an Offer-in-Compromise depends on three major factors – the taxpayer’s monthly disposable income, the multiplier, and the taxpayer’s assets. The reasonable collection potential is calculated: (taxpayer’s monthly disposable income) x (the multiplier) + (value of assets).
Disposable income is the difference between a taxpayer’s income and their expenses. The IRS uses national standards when calculating expenses, not the taxpayer’s actual expenses. Historically, the IRS did not consider many of the taxpayer’s actual debts. Under the initiative, the IRS will now allow taxpayer’s to deduct student loan payments and monthly payments for state and local delinquent taxes. The national standards now also include a “miscellaneous” allowance. The miscellaneous allowance can be used for credit card payments and other debts that were previously not considered. The additional expenses will reduce the calculated monthly disposable income.
The biggest change concerns the multiplier used to calculate the amount the IRS will settle the debt. Once a taxpayer’s disposable income is calculated, the IRS uses the multiplier to calculate the cash component. If the taxpayer can pay the lump sum in five or fewer months, the IRS multiplier was 48 (4 years). Now, that multiplier is 12 (1 year). If the taxpayer can pay in 6 to 24 months, the multiplier was reduced to 24 (2years) from 60 (5 years). The decreased multipliers significantly reduce the reasonable collection potential calculated to settle an IRS obligation.
The asset calculation has also been reduced. The IRS will use 80% of the value of assets, overlook some dissipated assets and forego any equity in income producing assets in calculating the asset portion of the offer-in-compromise. All of these changes have the effect of lowering the calculated “reasonable collection potential.”
Finally, the Fresh Start initiative changed IRS policy concerning Tax Liens. A Federal Tax Lien secures the IRS’s interest in property when a taxpayer fails to pay their tax obligation and alerts creditors of the government’s claim. The initiative increased the tax obligation to $10,000.00, from $5,000.00 before the IRS will file a federal tax lien (in most cases). The initiative also made it easier to remove a lien. For example, if the outstanding tax obligation is less than $25,000.00 (even if you paid down your obligation to under $25,000.00) and you agree to an installment agreement to pay the full amount through a direct debit agreement, the IRS will agree to withdraw the Federal Tax Lien. But, the taxpayer must be in full compliance with other filing requirements, made 3 consecutive monthly payments and there wasn’t a previous default.
The IRS Fresh Start Initiative may be just what you need. To find out if this program will work for you, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.