Start Over with the IRS

Taxpayers who are unable to pay the money that they owe the Internal Revenue Service (IRS) are in a difficult position. Some filers who genuinely feel that they do not owe the amount of tax that has been assessed to them can find relief with the Taxpayer Advocate Service or the Office of Appeals division within the IRS. Some complex cases can only be resolved to the taxpayer's satisfaction in a tax court. But those who legitimately owe back taxes to the IRS will face interest, penalties and eventually liens and levies upon their state tax refunds, wages and property.

For more information, read: What Happens When You Can't Pay Your Taxes?

The difficulties can mount because it is harder to get or keep a job or obtain affordable credit of any kind with tax debt. Many tax experts and consumer advocates have accused the IRS of failing to assist those who are trying to pay off their taxes. In 2011, the IRS announced the creation of a new initiative known as the Fresh Start program, partly in an attempt to those who had been hit hard by the recession. This program was designed to give taxpayers who owed substantial back taxes the opportunity to consolidate their tax bills and pay them off in a convenient and orderly fashion.

The Fresh Start Program contains several measures designed to streamline the collection process and make it easier for a larger number of taxpayers to make payment arrangements for their unpaid taxes. The major provisions of this program include the following:

Threshold
Increasing the dollar threshold for tax liens to $10,000.

Simplification
Simplifying and accelerating the procedure for having liens and levies removed after the taxes have been paid (this was formerly a very slow and cumbersome process). Taxpayers can now have these removed within 30 days upon request once their outstanding tax balance has been eliminated. Both this and the previous provision are aimed at reducing the substantial negative impact that tax liens can have on the taxpayer's credit report because, when a lien is withdrawn, it is effectively expunged from the taxpayer's credit history. A mere release of a lien by the IRS will appear on the taxpayer's credit report as a lien that was placed at one point in time and eventually satisfied in full. To request the withdrawal of a lien, taxpayers will need to complete and submit IRS Form 12277.

Installments
Instituting a Direct Debit Installment Agreement that withdraws a fixed payment from the taxpayer's account on a regular basis. This program is offered directly in conjunction with the two previous provisions. Once the taxpayer has made several payments in a timely fashion, the IRS will lift the tax lien even before the balance is paid in full. Taxpayers who are currently making installment payments and convert to the direct debit program can also have their liens lifted immediately upon request. (The IRS will immediately file a new lien on any taxpayer who had his or her lien withdrawn upon request and then defaults on this agreement.)

Small Businesses
Increasing the dollar threshold for installment agreements for small businesses. Previously, small businesses that owed more than $10,000 could not set up an installment agreement. The program raises this balance to $25,000 and allows businesses to pay off their tax debt over a two-year period.

No Means to Pay
Doubling the dollar threshold for those who wish to file an offer in compromise from $25,000 to $50,000. This is a major concession for taxpayers who have no means to pay their back taxes. 

The Fresh Start program is ultimately intended to ease the burden on responsible taxpayers who are proactively taking the necessary steps to pay off their tax debt. The increase in the dollar thresholds in the above provisions are essentially an inflationary adjustment that is long overdue. Furthermore, the lien withdrawals are only available for individuals and not businesses or other entities, and the program is only designed for use with income taxes. Those with delinquent gift, estate or employment taxes cannot use the program as a means of relief.

The Fresh Start program will provide substantial relief to thousands of delinquent taxpayers who are struggling to catch up on their tax debt. The withdrawal of tax liens under the provisions of this program can help many filers to keep or get jobs that can allow them to pay off their balances in full. For more information, visit the IRS Fresh Start program site.