The Fresh Start Offer in Compromise (OIC) program is a tool offered by the IRS that allows taxpayers who cannot afford to pay their full tax debt to propose a settlement for a lesser amount. This program is part of the broader Fresh Start Initiative launched in 2011, designed to make tax debt relief more accessible for those facing significant financial hardship.
How the Fresh Start Offer in Compromise Works
When you submit an Offer in Compromise under this program, you propose a payment that is less than your total tax liability. The IRS evaluates your offer by reviewing your entire financial situation, including your income, expenses, assets, and future income potential. The goal is to determine whether accepting your offer is in the best interest of both you and the government.
If the IRS accepts your offer, you must pay the agreed-upon amount either as a lump sum or through an approved installment plan to settle your debt. Once completed, the remaining tax debt is forgiven. If denied, you may submit a new offer if your financial circumstances change substantially.
Eligibility Criteria for Fresh Start OIC
The IRS considers several factors to decide eligibility:
- Your ability to pay the tax debt now and within a reasonable future timeframe.
- Your income, necessary living expenses, and asset values.
- The IRS’s projected ability to collect the full debt amount without an offer.
To qualify, taxpayers must also be current on all required tax filings and have paid any estimated taxes due. The program targets those experiencing significant financial difficulties who realistically cannot pay their full tax obligations.
Common Misunderstandings
- Not a bargain sale: The IRS does not usually accept offers that are far below what you can reasonably pay.
- Eligibility requirements: Not all taxpayers qualify; you must meet strict criteria demonstrating financial hardship.
- Ongoing obligations: After acceptance, you must comply with tax rules for five years, or risk defaulting on the agreement.
Practical Example
Consider a taxpayer who owes $20,000 in back taxes but has only $8,000 available to pay without compromising basic living expenses. They submit an Offer in Compromise for $8,000. If the IRS agrees this amount fairly reflects their ability to pay, they accept the offer and forgive the remaining $12,000.
Tips for a Successful Offer in Compromise
- Provide accurate and honest financial disclosures, as the IRS thoroughly verifies submitted information.
- Consult a tax professional experienced in OIC applications to navigate the complex process.
- Ensure all required federal tax returns are filed and up-to-date before applying.
- Understand associated fees: the application fee is $205 (non-refundable), and an initial payment is required with your application.
- Explore alternative IRS programs like installment agreements or hardship status if an OIC is not suitable.
Frequently Asked Questions (FAQs)
Q: Can I apply if I haven’t filed all my tax returns?
A: No. You must be current on all required tax filings to qualify.
Q: How long does the IRS take to review an Offer in Compromise?
A: Typically 6 to 12 months, depending on case complexity and IRS workload.
Q: Will the IRS halt collection activities during the application?
A: Yes, if you meet certain criteria, including submitting the application with the initial payment.
Q: Can I apply more than once?
A: Yes, if your financial situation changes substantially.
You can learn more about the general Offer in Compromise process and qualifying criteria on FinHelp’s detailed pages: Offer in Compromise Process and Qualifying for an Offer in Compromise.
For authoritative information, visit the IRS official page on the Offer in Compromise and Fresh Start Program: IRS Offer in Compromise and IRS Fresh Start Initiative.
Summary Table: Fresh Start Offer in Compromise at a Glance
| Feature | Description |
|---|---|
| Purpose | Settle IRS tax debt for less than owed |
| Eligibility | Demonstrate inability to pay full tax debt |
| Application Fee | $205 (non-refundable) |
| Review Time | 6–12 months or longer |
| Outcome | Debt reduced to agreed amount or offer denied |
| Requirements | Current tax filings and accurate financial disclosure |
| Payment Options | Lump sum or installment plan |
Understanding the Fresh Start Offer in Compromise can provide a pathway to resolving overwhelming IRS tax debt with a tailored settlement, making it an essential option for those facing financial difficulties.