The IRS has announced, in IR-2012-31 (3/7/12), a significant
expansion of its “Fresh Start” initiative that was begun last year to assist
financially distressed taxpayers by providing new penalty relief to the
unemployed and making installment agreements more accessible. Now, certain
taxpayers who have been unemployed for 30 days or longer will be able to avoid
failure-to-pay penalties. In addition, the dollar threshold for taxpayers
eligible for installment agreements has been doubled to help more people qualify
for the program.
Under the new Fresh Start provisions, a six-month grace period on
failure-to-pay penalties will be made available to eligible wage earners and
self-employed individuals. The request for an extension of time to pay will
result in relief from the failure-to-pay penalty for tax year 2011 only if the
tax, interest and any other penalties are fully paid by Oct. 15, 2012. The
penalty relief will be available to wage earners who have been unemployed at
least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for
filing a federal tax return this year and to self-employed individuals who
experienced a 25% or greater reduction in business income in 2011 due to the
economy. Taxpayers meeting the eligibility criteria will need to complete a new
Form 1127A (available on IRS.gov) to seek the 2011 penalty relief.
This penalty relief, however, is subject to income limits. A
taxpayer's income must not exceed $200,000 if he or she files as married filing
jointly or not exceed $100,000 if he or she files as single or head of
household. Penalty relief is also restricted to taxpayers whose calendar year
2011 balance due does not exceed $50,000.
In its announcement, the IRS pointed out that the failure-to-pay
penalty is generally half of 1% per month with an upper limit of 25%. It advised
that, under these new relief provisions, taxpayers can avoid that penalty until
Oct. 15, 2012, which is six months beyond this year's filing deadline. The IRS
cautioned, however, that it is still legally required to charge interest on
unpaid back taxes and does not have the authority to waive this charge, which is
currently 3% on an annual basis. The IRS further cautioned taxpayers to file
their returns on time by April 17 or file for an extension because
failure-to-file penalties applied to unpaid taxes remain in effect and are
generally 5% per month (with a 25% cap).
With respect to installment agreements, the IRS announced that,
effective immediately, the threshold for using an installment agreement without
having to supply the IRS with a financial statement has been raised from $25,000
to $50,000. Under the new Fresh Start provisions, Taxpayers who owe up to
$50,000 in back taxes will be able to enter into a streamlined agreement with
the IRS that stretches the payment out over a series of months or years. The
maximum term for streamlined installment agreements has also been raised to 72
months from the current 60-month maximum. Taxpayers seeking installment
agreements exceeding $50,000 will still need to supply the IRS with a Collection
Information Statement (Form 433-A or Form 433-F). Taxpayers may pay down their
balance due to $50,000 or less to take advantage of this new payment
option.
In its announcement, the IRS advised that, although under the new
installment agreement provisions penalties are reduced, interest continues to
accrue on the outstanding balance. In order to qualify for the new expanded
streamlined installment agreement, a taxpayer must agree to monthly direct debit
payments. Taxpayers can set up an installment agreement with the IRS by going to
the On-line Payment Agreement (OPA) page on IRS.gov and following the
instructions.
No comments:
Post a Comment