Understanding IRS Debt Relief

by tempuser

It is reported that America has about $527 billion in tax debt with the average person carrying a debt of $16,849. There are countless scenarios that can lead to tax debt. One of the most common reasons is when a person owes more than they thought they would and can’t pay it. The Internal Revenue Service (IRS) does their best to prevent and reduce tax debt. To help Americans with what they owe, the IRS offers the Fresh Start Program. But how does it work?

Understanding the Fresh Start Program

The Fresh Start Program has been around since 2011. It started as a way for the IRS to assist taxpayers in paying off their debt. The IRS actually provides a few different forms of debt relief to people in need. The ultimate purpose of these opportunities is to reduce the overall tax debt that people owe including penalties. With that being said, there isn’t a one size fits all solution for handling tax debt. Your specific needs will determine the best route for you. The Fresh Start Program helps taxpayers avoid penalties such as:

  • Wage Garnishments
  • Incarceration
  • Levies
  • Liens

Like we stated above, your particular situation will determine which IRS debt relief option can help you the best. However, this might not be something you can figure out on your own. You can consult the help of a tax specialist to get a better understanding of your debt. They also help you decide which IRS opportunity is best suited for you. You can consider the following opportunities:

  • Penalty Abatement
  • Currently Non Collective (CNC)
  • Offer in Compromise (OIC)
  • Installment Agreement (IA)

Penalty Abatement

There are many reasons that the IRS issues an automatic penalty. Penalties are a pain because they can add up fast and significantly increase your debt. If this sounds familiar, then Penalty Abatement might be the right opportunity for your situation. However, even if you think you can benefit from this program, you will want to contact a tax consultant to be sure. You won’t be able to get any help with penalties unless you complete an application. Most people are not familiar with the complicated language of the application paperwork. Which is even more reason to get in touch with a professional!

What is a Reasonable Cause and Why Does it Matter?

There is a catch when it comes to penalty relief. You need to establish that you had a good reason for not taking care of your tax debt. The following are specific examples of this:

  • Disturbances
  • Inability to get tax records
  • Qualifying illness of the taxpayer
  • Fire or Natural Disasters
  • Qualifying illness of an immediate family member of the taxpayer
  • Death of an immediate family member of the taxpayer

However, simply providing a reason isn’t good enough for the IRS. They also require you to present documentation that supports your reasonable cause.

Currently Non Collectible (CNC)

The beauty of this program is that it stops your tax debt from getting collected. This might be music to the ears of someone who has a very large amount of debt that they can’t handle. If you are having difficulties making your debt payments, CNC might be a good option to help you. Those that are recognized by the State and IRS are considered eligible. But what does that mean exactly? This applies to people who are likely to experience tough times financially if they continue making their debt payments. To be more specific, that is someone with allowable expenses that are greater than their gross monthly income, with consideration of the national standard.

The Biggest Advantages of the CNC Program

One of the largest advantages of CNC is in some cases, participants in this program never have to pay back their acquired debt! This can occur if the 10-year statute of limitations expires on your back taxes while you’re in CNC status. The IRS refers to them as the Collection Statute Expiration Date (CSED).

Aside from that, there are many benefits to being a part of the CNC Program. Another advantage CNC offers is the halt of collection efforts by the IRS or state tax officials. Examples of these efforts can include asset seizures, bank levies, and wage garnishment. Lastly, taxpayers benefit greatly from CNC because it means they are getting help with their overwhelming tax debt. Even temporary relief of needing to make payments to the IRS can be the support that someone needs to change their situation.

Managing Your Outcome Expectations with the CNC Program

Now that you understand how the CNC Program can help you, it is important that you understand what to expect. First, you may still need to pay back either your entire debt or a portion of it at some point. In some cases, people can have their debt cleared. However, that may not happen in your particular situation. In addition to this, the IRS checks in on the status of your financials. This is because they want to ensure they’re aware when or if your finances grow enough to allow you to start paying them back again. When the IRS asks for ongoing documentation, it is important to comply. If not, you could be removed from the program.

Finally, one of the main factors to keep in mind is that only a handful of applicants are approved to CNC. For this reason, you should expect that the application process won’t be easy and will take quite a bit of time and effort from you.

Offer in Compromise (OIC

There are situations where a debtor asks the IRS if they can pay off some of their debt but not all of it. In this case, the IRS and the debtor negotiate with one another on a settlement amount. If you have some extra money you can pay to your debt right now, this might be a good option for you. You will need to be accepted before you can benefit from this option. Unfortunately, the IRS turns down more than 50% of the applicants.

Applying for the OIC Program

If you are interested in this option, you’ll want to make sure you have the best chance of being approved. Having a tax professional help you with the application can increase your chances! It is important to know that if you haven’t been compliant in your tax returns for at least 6 years, you will be denied.

Completing and submitting an application is only the first step. When the IRS begins to review your application they’ll want to know how capable you are to pay back your debt. Like the previous options, OIC may ask you to provide supporting documentation, such as financial records to verify your situation. If you want a chance of your application being accepted, you need to be able to present this.

Installment Agreement (IA)

Installment Agreements are a common way to resolve debt for taxpayers. This occurs when someone owes during tax season but doesn’t have the funds to pay the entire amount up front. When this happens, a taxpayer can be charged fees and penalties. Some instances can even lead to arrest! Installment agreements help by coming up with payment plans for debtors to pay off their debt over time. State tax entities and the IRS are known for allowing their debtors to do this. This is beneficial to taxpayers because they can pay down their debt at a pace that they can afford.

How to Qualify to Make an Installment Agreement

This debt solution is a good option for someone that meets the following:

  • Cannot take out a loan for the amount they owe
  • Discloses their cash and assets
  • Can provide evidence that they cannot pay off the amount they owe
  • Up to date on their filed tax returns

Applying to Reach an Installment Agreement

Much like all of the other options, it is recommended that you get with a tax specialist for help with this. Consulting with a professional offers the best chances of a favorable outcome! If this sounds like a helpful option for your situation, you will want to act quickly. That is because the quicker your debt is resolved, the less likely you are to get hit with any costly penalties.

The Fresh Start Program: Everything You Need to Know About Eligibility

There are certain requirements that the Fresh Start Program has for anyone that wants to benefit. First, in order to qualify an applicant must be up to date on all previous year’s filings. Other than that, annual withholding’s are considered. A few specific qualifications that you can expect include:

  • The income of single filers is not greater than $100,000
  • Self-employed filers must prove that their net income decreased by 25%
  • The tax balance of an individual is not greater than $50,000 prior to the year ending
  • The income of joint filers are not greater than $200,000

Prior to applying for the Fresh Start Program, you have to know which of the options we reviewed is best for your situation. This is because each one requires a separate application. You will need to apply to one of them directly. It is important to be thorough and up front on the applications. Consulting a professional to help you with the process can give you a better shot getting your debt handled (we know we sound like a broken record!).


Millions of Americans with tax debt are searching for a way out of it. Luckily, the IRS has come up with ways for taxpayers to get some relief. These options are a part of the Fresh Start Program that came about over 10 years ago. The debt relief options available with this program include:

  • Penalty Abatement
  • Currently Non Collective (CNC)
  • Offer in Compromise (OIC)
  • Installment Agreement (IA)

If you want to ensure you get the best possible outcome with debt relief, then you’ll need to understand your particular situation. Talking to a tax specialist is the best way to make sure of this. They can help you decide which program can help you and also better your chances of being accepted to one of them. You will want to take action as soon as possible so that your debt doesn’t get more complicated with time. Dealing with tax debt may seem like an impossible situation, but one of these programs could make all of the difference!

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