What is the IRS Fresh Start Initiative?

The Fresh Start Initiative began as a series of major IRS collection policy changes in 2011 and 2012, to help taxpayers who were struggling to pay their back taxes. The IRS announced two major changes to its collection policy, which are still in effect today.

2011:  Relaxed lien-filing criteria and installment agreement terms.

In 2011, the IRS made several changes that provided relief from federal tax liens and allowed more taxpayers to obtain favorable payment terms with the IRS.

• Relaxed lien-filing criteria: Before this change, the IRS filed a tax lien on tax balances above $5,000, when taxpayers hadn’t set up a qualifying installment agreement. With this change, the IRS increased the tax balance limit to $10,000.
• Ability to request lien withdrawal: The IRS gave taxpayers the opportunity to have their tax lien withdrawn if they meet certain criteria. Lien withdrawal basically says to creditors that the lien never existed. This helps taxpayers access credit if needed.
• Expansion of streamlined installment agreement terms: Streamlined installment agreements (SLIAs)have always allowed taxpayers to get payment plans with more favorable terms and–critically–avoid federal tax liens. In 2011, the IRS expanded streamlined payment plans to allow taxpayers to set up a SLIA when they owe up to $50,000 (increased from $25,000). The IRS also increased the time to pay the balance from 60 months to 72 months. People who set up a SLIA  are now able to avoid a tax lien if they paid by direct debit on balances between $25,000 and $50,000.
• In 2011, the IRS also emphasized that taxpayers who owe any amount should be able to pay over 6 years on their current budget. Before, IRS collection agents tried to maximize taxpayers’ monthly payments by disqualifying certain discretionary expenses. Fresh Start made it clear: If someone can pay their tax debt within 6 years (or by the collection statute expiration date, whichever is shorter), the IRS may allow discretionary expenses. The IRS calls these conditional expenses, meaning they’re allowed on the condition that the taxpayer can pay within 6 years. This provision became less attractive in 2020, when the IRS started to allow taxpayers who owe up to $250,000 to pay their tax bill with payment terms up to the collection statute (generally 10 years).

2012: Changes to the offer in compromise program

In 2012, the IRS made more changes. Most of these changes gave more taxpayers access to the offer in compromise (OIC) program.

The IRS made the OIC program more attractive by:

• Revising calculation of the taxpayer’s future income
• Allowing taxpayers to repay student loans
• Allowing taxpayers to pay state and local past-due taxes
• Expanding the allowable living expense category and amount
• Reducing the offer amount for people who qualify for an OIC

For example, if you qualify for an OIC, have $500 in monthly disposable income and $5,000 in net equity in assets, you would see your OIC offer amount drop to $11,000 from $29,000 (pre-Fresh Start). Fresh Start changes like these made the OIC more attractive. However, after a surge in OIC applications in 2012 and 2013, OIC applications and approvals have declined. In fact, in 2020, the IRS accepted fewer OICs (13,980 accepted) than the last pre-Fresh Start year in 2011 (20,000 accepted).

When you owe taxes, check all your options

The best thing to do when you owe taxes is to see whether you can reduce the amount you owe. Depending on your situation, you should consider solutions such as:

• Penalty abatement
• Amending your return to correct the taxes due
• Requesting audit or CP2000 reconsideration or tax return adjustments

If you still owe and can’t pay, consider several collection alternatives including: 

• Extensions to pay
• Installment agreements (monthly payment plans)
• Temporary payment deferral called currently not collectible status (if you are in financial hardship)
• An OIC to settle your tax bill for less than you owe (if you are in financial hardship)

Get more help

For help creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see how we can help you.

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

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