Financial Hardship: What Is It And How To Qualify For The Fresh Start Program

The IRS’s Fresh Start Program is a well-known initiative to help Americans who owe back taxes. However, the core principle of this program is to provide aid to those who have endured financial hardship. 

Each program has different requirements, but most have one major qualification: you must demonstrate evidence of a financial struggle. (The only exception is installment agreements (IA), which are similar to a payment plan.) 

Though those with a higher income can qualify, the Fresh Start program has different levels of help available. For instance, people who earn an income and also own assets could still qualify for an OIC, however, it’s far more common that they will qualify for an IA instead.

As a tax relief company, we help Americans who owe back taxes resolve their tax issues and eliminate their tax liability. 

So, how do you make sure you qualify for financial hardship relief?

What Is Financial Hardship?

To the IRS, financial hardship means that one isn’t reasonably able to pay their taxes. To be clear, this situation must be due to a lack of income, not living above one’s means.
If your back taxes start to accumulate, there’s a good chance that you’ll be able to qualify for at least one of the Fresh Start programs. There are three main relief programs: Installment agreement (IA), currently non-collectible (CNC), or offer in compromise (OIC)
The taxpayer must apply for the Fresh Start program themselves, which is time-consuming and can be mentally draining. This is why TaxRise recommends working with a professional tax relief company to help simplify the process.

Why Is Proving Financial Hardship Vital To The Fresh Start Program?

Though the Fresh Start program is a powerful tool for Americans in debt to get back on their feet, the reality is that not all Fresh Start Programs are created equal.
The most desirable Fresh Start Program is the offer in compromise (OIC). This is where the IRS settles for a small portion of the taxes you owe. In other words, the IRS calculates the amount you can reasonably pay, also known as the reasonable collection potential (RCP), and if you offer a number over the RCP and demonstrate financial hardship, you may get accepted.
If you’d like to learn more about OICs, we’ve written several articles about this topic, including the OIC resolution rate and a comprehensive guide on OICs.

How To Prove Financial Hardship To The IRS?

To prove financial hardship, you must provide evidence of financial hardship. This can take on many different forms since everyone’s situation is unique.
Here are some common sources of evidence for proving financial hardship:
  • Medical records
  • Income statements
  • Property statements
  • Utility bill records
Make sure to have the most recent documents possible.

Financial Hardship Example (For IRS Fresh Start Program)

Here’s a common scenario we see here at TaxRise: a taxpayer doesn’t submit a tax return for one year (for whatever reason) and after that year, they simply stop filing tax returns for each tax year afterward.
Each year, the anxiety grows and eventually reaches the point where the taxpayer has put it off for so long that they don’t even want to think about it. However, the IRS remembers and will start sending letters to collect the back taxes due.
The taxpayer must pay several years’ worth of taxes (along with interest and penalties) and they aren’t aware of their options. Do they actually have to pay all of their taxes? Can the due date be postponed? Is there somebody who can help me resolve my tax issues?
This is where TaxRise steps in. We analyze the taxpayer’s situation and recommend the best Fresh Start Program for them that suits their needs. For many of our clients, this means being approved for an OIC and having to pay only a fraction of the back taxes they once owed.

The Takeaway

Though the Fresh Start Program is an excellent resource for Americans, the process can be confusing and complicated.
Check out our free tax consultation to see where you stand regarding back taxes. We will evaluate your unique financial situation and tell you the best program to apply for.
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