The IRS has a series of new steps to help struggling taxpayers have a “fresh start” with their tax liabilities. Aptly name the IRS Fresh Start program, the goal is to help individuals and small businesses meet their tax obligations with as minimal a burden as possible.
The IRS has focused on 3 key areas in their new Fresh Start initiative: Tax Liens, Installment Agreements, and Offer in Compromises. Let’s look at each area and how the new programs will benefit taxpayers.
The first significant change the IRS has implemented is increasing the dollar thresholds when tax liens are generally filed. This threshold has increased from $5,000 to $10,000. The IRS warns that Notices of Federal Tax Liens may still be filed on amounts less than $10,000 when circumstances warrant but for most taxpayers this is welcome relief if their tax liability is below this threshold amount.
The IRS has also modified procedures that will make it easier for taxpayers to obtain lien withdrawals. Taxpayers may request a lien withdrawal in writing using Form 12277, Application for Withdrawal (PDF). To qualify, your tax liability must have been satisfied and you have been in compliance with your last 3 years of tax returns.
In order to speed the withdrawal process, the IRS has also streamlined its internal procedures to allow ACS collections to withdraw the liens upon implementation of certain Installment Agreements.
Direct Debit Installment Agreements
For taxpayers with tax assessments of $25,000 or less, the IRS will allow lien withdrawals if certain criteria are met. Taxpayers will have to agree on a Direct Debit Installment Agreement (DDIA) which is an installment agreement where the IRS will debit the monthly payment amount directly out of the taxpayer’s bank account.
After a probationary period (usually 90 days), the tax lien will be withdrawn upon request using Form 12277, Application for Withdrawal (PDF).
Another noteworthy change for the IRS is in regards to installment agreements. The IRS will allow for a streamlined installment agreement for taxpayers with tax liabilities between $25,000 and $50,000 without having to provide a complete financial statement or financial documentations. Under this program, the IRS will ask a series of questions to ascertain whether a taxpayer will qualify under this program. If the taxpayer qualifies, the only caveat is that the installment agreement has to be set up as a Direct Debit Installment Agreement. The major benefit of setting the installment agreement as a DDIA is that the IRS will suspend the Notice of Federal Tax Liens.
The IRS also made the streamlined installment agreements available to small businesses. The payment program raises the dollar limit from $10,000 to $25,000 for small businesses. Small businesses still have only 24 months to pay and the installment agreement has to be set up as a DDIA.
Offer in Compromise
The IRS also expanded its new Offer in Compromise program to encompass a larger group of struggling taxpayers and to add flexibility to the financial analysis used in evaluating offers.
The Streamlined Offer in Compromise process includes fewer requests for additional financial information, the requests for additional information can be made by phone rather than by mail, and there is greater flexibility when considering a taxpayer’s ability to pay.
The changes to the financial analysis will allow greater flexibility in determining the equity in assets as well as greater flexibility in determining allowable living expenses. It also reduces the amount of future income included in the Offer and decreases the timeframe to complete the OIC payment process to two years.