IRS Offers Struggling Taxpayers a Fresh Start

Starting last year, the Internal Revenue Service (IRS) started taking a kinder, gentler approach with struggling taxpayers. After all, with the economy still in the tank, there are a lot more of them.

Instead of sending worried taxpayers to so-called “tax consultants,” the IRS is encouraging taxpayers to contact the agency directly if they find themselves in a jam. They call this new approach, a “fresh start.”

Tax liens

One of the ways in which “fresh start” benefits taxpayers is it increases the IRS lien filing threshold from $5,000 to $10,000. Liens may still be filed on amounts less than $10,000 when circumstances warrant. Also, the IRS will not retroactively apply the new $10,000 lien filing threshold and automatically withdraw a previously filed lien.

The IRS may now issue a withdrawal of a filed Notice of Federal Tax Lien after the lien has been released. If you wish to have the Notice of Federal Tax Lien withdrawn, you must request the withdrawal in writing, using Form 12277, Application for Withdrawal.

Generally, eligibility requirements are:

• Your tax liability has been satisfied and your lien has been released
• You are in compliance for the past three years in filing all individual and business returns and all information returns
• You are current on your estimated tax payments and federal tax deposits, as applicable. 

“Fresh start” also streamlines the Offer in Compromise program to cover more taxpayers. An Offer in Compromise is the process by which taxpayers can settle their tax debt for less than the amount owed. While many taxpayers felt the need to hire “consultants” in the past, it's much easier to handle yourself now.

The expanded Streamlined Offer in Compromise program includes:

• Fewer requests for additional financial information
• If necessary, requests for additional information by phone, not by mail
• Greater flexibility when considering your ability to pay

Qualifying taxpayers are:

• Wage earners
• The unemployed
• Self-Employed taxpayers with no employees and gross receipts under $500,000

Eligibility requirements are:

• Your total household income is $100,000 or less, and
• The amount you owe is less than $50,000 when your offer is filed 

“These steps are in the best interest of both taxpayers and the tax system,” said IRS Commissioner Douglas Shulman, when he announced the program. “People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens.”