Month: November 2023

Communicating with the Internal Revenue Service (IRS) is not for the faint of heart.  They don’t negotiate in the sense you normally think of negotiating and dealing with them can be daunting, especially as penalties and interest accrue.  This keeps adding stress to an already difficult situation.

However, for individuals and businesses grappling with tax debt and penalties, the IRS Fresh Start program offers a way out. This quiver of 4 different IRS programs is a pathway toward resolving IRS tax issues of all kinds, with one specific to relieving you from the burden of penalties, providing a REAL solution for those looking for a fresh start (pun intended).

Explaining the IRS Fresh Start Program

The IRS Fresh Start program is an initiative designed to help taxpayers settle their tax liabilities as simply as possible.  To qualify for the Fresh Start program, the taxpayers tax liability must be below the magic threshold of $50,000, although there are ways to get under that magic number.

The Fresh Start program has tools to do the following:

• If your goal is to reduce your tax liability, then you would apply for an Offer in Compromise.  Applications received are accepted at about a 1 in 3 rate.  This one is tough to qualify for if you own your own home and have equity.  Otherwise it could be a good option for you.
  
• Pay your tax debt over time.  You can pay your debt off over a max of 72 months.  There are also ways, under certain circumstances, to pay less using a partial pay installment agreement.
  
• You can apply for Currently Not Collectible status.  This would stop IRS collection activity for usually a 12 month period.  The IRS has leeway to give as little as 6 months, and I have personally helped a client receive 36 months.  Use your time wisely to get your financial life in order.
  
• This one.  In this article we’ll talk about applying for penalty (and the associated interest) abatement.  When you apply for abatement (removal) of penalties, you also get the added benefit of the interest charged on that penalty will also be removed.   It’s a double savings.

How To Qualify for Relief

To qualify for the IRS Fresh Start program, certain criteria must be met. Individuals and businesses who owe $50,000 or less in taxes can apply for relief through streamlined installment agreements. Those who owe more than $50,000 may still qualify but will need to provide more detailed financial information to the IRS for their review.

Eligibility for penalty relief primarily focuses on:

• Financial Status:  You need to demonstrate your financial hardship and show that paying any of your tax down would cause an undue hardship.  A significant financial burden.
  
• All Tax Returns Filed:  They IRS won’t really talk with you about past tax debts if you haven’t filed all tax returns.  This is generally my first line of inquiry.
  
• Commitment to Resolution:  You have to show the IRS that you want to resolve your tax issues.  I know.  Who would want to walk around with this stress every day.  I’ve had past clients walk in without having filed a tax return in 20 years.  If they don’t have a commitment to filing their returns, it’s going to be hard to convince them you will commit to resolving the problem.  But they are convinced of this by others daily.

What Do I Do to Remove Penalties Using the IRS Fresh Start Program

• 1: Assess Your Tax Situation

We need to collect all tax agency notices because if we don’t know what we’re dealing with, we can’t determine the appropriate tack. We also need to make sure all required tax returns have been file, or the IRS won’t even talk to us about your delinquent tax situation.

• 2: Determine Eligibility

There are several ways to get some or all of your penalties abated.

Reasonable Cause – This reason would be on a case by case basis.  Your records burned up in a fire would be reasonable cause.  I forgot because the new Star Wars movie came out, isn’t.

FTA – This stands for First Time Abatement.  Basically, if you have filed your taxes and paid at the time of filing for the prior three years, you can qualify for abatement

Statutory Exceptions – Statutory exceptions are exceptions but in place as law. Examples are things like you lived in a federal disaster. or you were involved in a military operation would be statutory exceptions.  Statutory exceptions are dictated by the type of penalty.  We would list your penalties in a spreadsheet and put each exception allowed for the penalty.  This makes it easier to find the best combinations to yield the greatest savings.

• 3: Apply for Relief

We would write a letter (or file for 843) explaining which penalty or penalties you are requesting abatebent on.  You would be painting a picture explaining in detail why you deserve an abatement.

You may need to supply the IRS with substantiating third-party documentation.  An example would be getting a receipt from the post office showing you mailed your return on time.  We always advise clients to send taxing agency correspondence registered with return receipt for times like these.

Now It’s Time to Negotiate a Payment Plan

Once the IRS accepts your explanation and abates some (or all) of your penalty, and the associated interest, it’s time to set up an Installment Agreement or apply for an Offer in Compromise.  This is that “commitment” part we talked about earlier.  If you are unable to resolve your tax liability with an Installment Agreement, or able to apply for an Offer in Compromise we should have started out getting you on Currently Not Collectible status.

You Must Remain in Compliance

Once the IRS has accepted your offer, be it an installment plan, offer in compromise or change in status, you must remain in compliance.This means file returns and pay your current taxes on time.  If you are self employed and pay estimates, make sure to pay them on time.

Falling out of compliance could result in the IRS reversing everything and your tax debt becoming due an payable immediately.  Don’t risk it.

Why the Fresh Start Program Rocks!

The IRS Fresh Start program offers three main benefits:

• Penalty Reduction – Under the program, penalties might be reduced or waived, lightening the overall tax burden.
• 72 month Installment Agreement – Tailored payment plans make it easier to settle tax debt without severe financial strain.
• A Pause in Time – If your financial life is in trouble and paying your taxes would cause serious financial hardship, the Fresh Start program has what’s called Currently Not Collectible status.  If approved, you will get between 6-12 months of collectio free time to get your financial life in order.

Conclusion:  Fresh Start Penalty Abatement

The penalty abatement portion of the IRS Fresh Start program is the first step in your tax resolution.  Tax penalties (and the associated interest.  Don’t forget, interest is charged on your balance.  Penalties and interest increase the balance.  Abate a penalty and the interest that has been charged on that penalty also goes away) quickly increase your balance to the point of out of control.

Reducing the balance goes a long way in resolving your problem, whether by setting up an Installment Agreement or applying for an Offer in Compromise.

By following the steps detailed by the program, taxpayers, both individual and business, can request their penalties removed, tax debt balance reduced, and set a tack toward a financially secure future.

I also suggest you seek professional help from a tax resolution expert.  They will help you navigate the process with as little pain as possible. Ultimately, this initiative allows taxpayers to face their tax issues, get control of their financial situations, and end up in a place with no tax debt.

It’s all possible.  That’s it for tonight.  Stay cool people.

JKC

Dealing with a large tax debt is a terrible thing.  You lose sleep.  You struggle to find motivation.  As cheesy as it sounds, food even loses its flavor (hmmm  bad pun  sorry).  Enter the IRS Fresh Start programs Currently Not Collectible status.

Nothing about dealing with IRS complexities is fun.  Nor easy.  But what do you do if you absolutely cannot pay anything?  This is a legit question.  You didn’t pay these taxes for a reason.  If you had the money, and no real reason to save it on something else, you no doubt would have paid your debt. The answer is to somehow stop the IRS collection process.

Sometimes you find yourself in a situation where you are unable to pay your tax debt due to financial hardship and the IRS offers a lifeline in the form of the Fresh Start Program. One of the best tools in the quiver of this program is the Currently Not Collectible (CNC) status, which can provide temporary relief from aggressive IRS collection actions. In this article, we will explore what the IRS Fresh Start Program is and how the Currently Not Collectible status can help you regain your financial footing.

First:  The IRS Fresh Start Program

The IRS Fresh Start Program is a quiver of tools designed to help taxpayers negotiate their tax debts and once again become compliant with the tax laws. In 2011, when the IRS created the Fresh Start program, they aimed for a program that was able to assist individuals and businesses dealing with tax problems. Its goal is to provide relief to those who genuinely can’t meet their tax obligations due to financial hardship. One of the best tools is Currently Not Collectible status.

The Fresh Start Currently Not Collectible (CNC) Status

The Currently Not Collectible (CNC) status is one of the best tools of the IRS Fresh Start Program. When the IRS assigns a taxpayer Currently Not Collectible status, it means that the IRS acknowledges the taxpayers financial situation as being so bad that they are temporarily unable to pay their tax debt.

Under CNC status, the IRS will cease all active collection efforts, such as levies and garnishments, and will not require immediate payment.  The default period is 12 months, but I’ve been given as little as 6 and as many as 24.

Some Benefits of CNC Status

• Collection Activity STOPS: The most significant benefit of CNC status is that the taxpayer receives immediate relief from IRS collection activity. What this means is that the IRS will stop wage garnishments, bank levies, or type of property seizures while you are under CNC status.  The most significant benefit because they will leave you alone!

• Time: Time to get your financial world in order.  I recommend maintaining a sense of urgency.  12 months goes by fast and you shouldn’t waste this time.  While in CNC status, you get a breather from collection activity, but you still owe the money.  Plus interest and penalty.

• No Levies or Liens: Once granted CNC status, this protects your assets from being seized by the IRS. If you or a family member are having medical problems, you don’t want to worry about the IRS swooping in and grabbing the money from you bank accounts.  CNC stops all levies, liens and garnishments.

• Time.  Again?: This is a little secret that’s not a secret.  As you may or may not know, the IRS has 10 years from the time of assessing the tax to collect.  Certain activities, such as negotiating an Offer in Compromise or bankruptcy,  “tolls” (stops) the 10 year clock from running.  I’ve had clients legitimately receive 36 months of CNC status.  That’s 30% of the statute period!

How To Qualify for CNC Status

To stop the IRS collection process, you need to demonstrate to the IRS that your financial situation is genuine and paying your tax bill would create a serious financial burden. Generally, the IRS will consider items such as income, expenses, assets, and liabilities when determining your eligibility for CNC status. It’s important to provide the IRS a clear picture of your paid through third party documentation.

If you’re self-employed, you should prepare financial statements and show hwo bad business has been.  If you lost a big client or a primary supplier went out of business, you can show how this had a detrimental effect on business through documenting the issue(s).  An there’s an embezzlement or some kind of disaster or casualty, document this to show how it has affected you.

Don’t try and hide anything.  I had a client move money to kids accounts, even after I told him not to.  The IRS knows who your kids are (you claim them on your tax return) and will ask for ALL bank statements, not just yours.  Don’t lie. If you do they’ll know.

Working with a Tax Professional

No question about it.  Yes.

Most tax resolution specialists know the IRS code, but more importantly, they also know the IRS Procedures Manual (IRM).  Specifically chapter 5.  Chapter 5 deals with how the IRS goes about collecting tax, and what they are allowed to do. At times I’ve dealt with Revenue Officers who know the IRM better than the tax code, so it’s important to call them out if they try do enforce something from the IRM that isn’t in the IRS Tax Code. If they don’t all this, go elsewhere.

This isn’t a swipe at anyone’s intelligence.  It is a challenge to understand what you don’t know.  It’s the wrong place to try and save money.

How I Have Used CNC Status

Now that we understand what CNC status is and how to get it, let’s look at how we can use it.

• For the primary purpose intended.  It was created to stop the IRS collection process. To take the time given and facilitate a plan to improve your finances.  At which time you would be able to set up an installment plan to repay the debt.

• Take the time and formulate a complex plan for an Offer in Compromise.  Except for the worst cases, most taxpayers don’t come close to qualifying.  We can make adjustments to your finances which may get you qualified.  The self-employed use this benefit the most.
  
• To eat up some statute.  In a lot of cases, the taxpayer has already gotten through several years of the statute.

A Mini Example:

• Hannah is experiencing some medical issues which is preventing her from working like she used to.  She qualified for CNC status and was granted 12 months.  Time left to collect is now reduced by a year. She stopped the IRS collection process.

• Her medical issues, although improving, still require a lot of rest. We ask for more time and are given another 12 months.
  
• Her health improves to he point she is able to go back to work full time.  We work with the IRS to set up an installment plan.
  
• We will set up a partial pay installment agreement on her behalf.  Since the larger amounts were so far back, she will get out of paying much of those balances.
  
• For purposes of this article I haven’t calculated the amount saved, but it would be at least 50%.

Fresh Start CNC Status Conclusion

The IRS Fresh Start Program’s Currently Not Collectible status can save you.  I think this can be the most important tool a tax resolution specialist can utilize.  You can stop the IRS collection process.

The IRS gives you an opportunity to get your finances back in order, once granted CNC status.  Take a few days to decompress, but get back to work devising a plan to get you out of this mess.

If business is bad, find out why or close your doors and get a job.

If there are medical issues, you can only do the best you can.  Medical problems have their own agenda, but what you can do is diligently maintain a file with information showing what you’re going through.  What the Dr’s recommend, or what their prognosis is.

CNC status gives you a gift of time.  Don’t waste it.  If things don’t turn around, maintain a record of what you’ve done and the results.  This will make it a lot easier if we have to go back to the IRS Revenue Officer and ask for another 12 months.

So there you have it.  Let me know if you have any questions.  I’ll do my best to get back to you.

Stay cool.

JKC