In May of 2012, the IRS announced changes to its Fresh Start Initiative that benefited taxpayers who owe tax debt. The new changes made the tax debt collection process less harsh while increasing thresholds for collective action. The Fresh Start Initiative affects several areas of tax relief including, speed of tax resolution, lien thresholds, terms, and conditions, and Offer in Compromise (OIC) income and tax debt limitations.

Before the 2012 changes, if a taxpayer owed $5,000 in tax debt, the IRS would issue a lien against that taxpayer. With the recent changes, the lien threshold has been doubled to $10,000. An IRS lien is issued against the taxpayer and is meant to, “protect the government’s interest in all your property, including real estate, personal property and financial assets,” as stated by the IRS website. This means that if the IRS issues a levy-- the actual seizure of your property to pay your tax debt-- they can take possession of your home or rental property, personal property such as a car, and financial instruments such as your 401(k) or IRA accounts to satisfy your tax debt. When the IRS issues a lien against a taxpayer, it simultaneously issues a Notice of Federal Lien which can be found on your credit report, preventing you from taking out any new loans and signaling to all of your current debtors that the IRS tax debt takes priority over the debts you owe to them. The increase in the IRS lien threshold amount is a step in the right direction that will make tax resolution less painful and time consuming for many taxpayers with relatively small tax debt.

Additionally, the new rules state that once a taxpayer who owes less than $25,000 enters into an installment agreement to pay their tax debt, the IRS will remove the lien filed against the taxpayer if the taxpayer requests it. Another area greatly impacted by the new rules involves Offers in Compromise (OIC). Prior to recent changes, strict income and tax debt thresholds limited certain taxpayers from participating in the OIC tax relief program. The changes provide that taxpayers making up to $100,000 a year with tax debt of $50,000 or less can apply for an OIC. Other changes to the tax collection procedures included the following:

  • Revising the calculation for the taxpayer’s future income.

  • Allowing taxpayers to include repayment of their government-backed student loans when figuring OIC.

  • Allowing taxpayers to include repayment of state and local delinquent taxes when figuring OIC.

  • Expanding the Allowable Living Expense allowance category and amount.

For more information about the IRS Fresh Start Initiative you can visit the Fresh Start Homepage.  

Settling your tax debt can entail a long and complicated process. For more information on how the Hillhurst Tax Group located right off of Los Feliz and the 5 Freeway can help you with all of your IRS tax problems, email us at info@hillhursttaxgroup.com or call us to set up a free consultation with our Los Feliz IRS tax attorney or Enrolled Agents at (323) 486-3314.