The IRS Fresh Start Program, initiated in 2011 (IR-2011-20) and expanded in 2012 (IR-2012-53), isn't a specific program but rather a collection of enhancements to existing tax laws and programs. These improvements include increased tax lien thresholds, more accessible installment agreements, and broadened Offer in Compromise options. The fundamental goal of this initiative is to assist taxpayers in managing tax debt more effectively, helping them to get back on track while avoiding aggressive collection tactics. Notably, the Fresh Start program does not involve a special application process with the IRS; instead, it involves a set of rules that reduce penalties for certain taxpayers and provide extended time frames for tax payments. Despite these benefits, some large tax relief companies have misleadingly portrayed the Fresh Start program as an exclusive IRS-approved opportunity, urging individuals to act quickly to access payment options, which is not the case.

The IRS determines a taxpayer’s reasonable collection potential, based on the taxpayer’s income and assets, to determine if the liability can be paid in full as a lump sum or through a payment agreement. When calculating this potential, the IRS looks at only one year of future income for OICs paid in five or fewer months, and two years of future income for OICs paid in six to 24 months. Form 656, Offer in Compromise, and Form 656-B (revised April 2024), Offer in Compromise booklet, reflect the most up-to-date computations and recovery periods.

When conducting financial analysis to evaluate a taxpayer’s ability to pay, the IRS applies allowable living expense standards that incorporate average expenditures for basic necessities for people in similar geographic areas. These standards are used when evaluating instalment agreements and OIC requests. The miscellaneous allowance portion of the standards includes items such as credit card payments and bank fees and charges. The IRS has clarified that it will allow payments for student loans for post-high school education if the loans are guaranteed by the federal government. Further, payments for delinquent state and local taxes may be allowed based on a percentage basis of tax owed to the state and the IRS.