The “Fresh Start” Program-Installment Plans and the Offer in Compromise

The IRS has implemented a “Fresh Start” program. This is not where you get a write off and a “fresh start”! Rather this is a program to pay your taxes off in installment agreements or make an offer to reduce the tax liability by showing your inability to pay the amount in full. Let’s look at each type of program.

Installment Plans-How Much the IRS thinks you can pay each month!

Unlike credit cards, the taxpayer does not get to determine the amount to pay each month to take care of the tax liability. The amount is determined by the IRS looking at all the income and property of the taxpayer to see what can be paid today, and then a payment plan is developed for the future. This is done through a complex analysis of the financial condition of the taxpayer where the assistance of a tax attorney or tax professional is suggested. There are fees involved in the setup of the plan if accepted by the IRS. Further, the current tax return each year is required to be filed timely and paid in full along with the required installment payment. Failure to adhere to the terms of the agreement can result in the whole amount being called and immediately due.

Offer In Compromise-The IRS believes you cannot pay your tax liability in full!

This sounds like the “deal” where you reduce the taxes owed. But the little catch here is what the IRS thinks you can pay, not what you think you can pay. Many offers are rejected because they do not meet the strict IRS criteria for the amount you “offer” for the tax bill. Also, the forms are very complex and ALL ASSETS and LIABILITIES (even the gold coin your Aunt Edith gave you) MUST be reported on the application. In other words, no hidden stuff from the IRS if you own it.

If you do want to make an offer, you have to submit the form along with the required payment with the offer. If the offer is accepted, you will have to pay the balance as agreed in installments or lump sum. Failure to strictly adhere to the terms of the accepted offer will void the offer and cause the entire tax bill to be reinstated.

The criteria for having a successful offer accepted is engaging a tax attorney or tax professional to do the preparation. Failure to submit a properly prepared offer is a waste of time and money in most cases.