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