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The Law Office of Seth J. Howell, PLLC
The IRS Fresh Start Program is often misunderstood. It’s not a magic form or automatic debt forgiveness — but it can help reduce, settle, or structure tax debt in a way that reflects your real financial situation. In this post, we walk through how it works, who qualifies, and how to determine whether it may help in your situation.
One of the most common calls that I field is from people wondering if they qualify for the IRS Fresh Start Program. They saw an ad on TV or Google, and it promised that they'd be able to erase their tax debt for pennies on the dollar using that program. This isn't a lie, but it's far from the whole truth. Part of the onus here does lie on the IRS and the way that they've publicized this program. While the program is real, it isn't some form, or one stop shop program that you can enroll in.
Let's talk instead about what it actually is. Around 2011-2012, the IRS publicized several updates to the Internal Revenue Manual (IRM), primarily focused on IRM 5.14, 5.8, and 5.12. These are the sections focused on installment agreements, offers in compromise, and liens respectively. This means that the Fresh Start Program, in a decidedly Habsburgian way, is not a single program, nor does it guarantee a fresh start. Below I'll dive into what it actually is, and how you can use it.
Prior the the changes made in IRM 5.14.5.2 (Streamlined Installment Agreements), taxpayers who owed more than $25,000 had to provide a full collection information statement if they wanted to pursue an installment agreement. That threshold was changed to $50,000 payable within 72 months, with no financial disclosure required. It is important to note that you must be in filing compliance in order to take advantage of this change. The default payment will be the balance owed divided by 72 months.
One of the largest changes that the Fresh start program brought was in the way that Reasonable Collection Potential (RCP) is calculated under IRM 5.8.4 (Investigation and RCP Calculation). First, we'll discuss what the RCP is and how it is calculated, then I'll explain how it changed as part of the Fresh Start Program.
RCP = (Net Realizable Value of Assets) + (Future Monthly Disposable Income x Multiplier)
The net reasonable value of assets is the same as it has been though, under IRM 5.8.5.4.1, you are allowed to value assets at the Quick Sale Value (QSV). QSV is an estimate of the price a seler could get for the asset in a situation where the asset has to be sold in 90 days or less. This is ordinarily calculated at 80% of the FMV, though exceptions can be made in a case by case situation.
Future Monthly Disposable Income is found by subtracting allowable living expenses (this is a table updated annually by the IRS) from your actual income and multiplying it by a multiplier variable. The Fresh Start Program made the greatest changes in this area, allowing for the use of actual expenses if explained and deemed necessary rather than requiring strict adherence to the expense table, and reducing the multiplier from 4 years at a minimum to 1 year. This has allowed for a greater amount of offers to be accepted.
In the world of tax liens, the fresh start program made the following changes:
If this applies to you, all you have to do to withdraw a lien is file Form 12277 (Request for Withdrawal of Filed Notice of Federal Tax Lien).
First time penalty abatement is a new change that was brought about by the fresh start program as well. It allows a taxpayer who hasn't been penalized in recent years to request forgiveness of a tax penalty and the resulting interest.
Applies to:
FTA (First-time Abatement) Requirements (IRM 20.1.1.3.6.1):
To sum it up, the Fresh Start Program was a sweeping set of policy changes to a number of existing IRS programs. They became more practical and less rigid when it comes to evaluating the financial situation of the taxpayer, and as a result it is easier to qualify for various types of relief. You still need to know what type of relief is best for your situation, and have all your documents and returns together in order to qualify.
You should talk to a tax professional if:
Waiting almost always makes the situation worse.
Taking the first step usually makes it better — much faster than people expect.
The Law Office of Seth J. Howell
📞 (832) 637-8794
🌐 www.HowellTaxLaw.com
You don’t have to handle the IRS alone.
And you’re not supposed to “just know” how to fix this.
That’s why I do what I do.