It’s tough out there these days and increasingly, taxpayers are scurrying away from their tax obligations for fear that they won’t be able to pay. As a practitioner, I’ve seen the drill plenty of time: lay low and hope the IRS doesn’t come looking for you.
That rarely works. And when IRS does catch up to you, it tends to be much worse. You usually want to come to them before they come to you.
With that in mind, the IRS has announced a major expansion of its “Fresh Start” initiative in order to help struggling taxpayers. IRS Commissioner Doug Shulman said, about the program:
We have an obligation to work with taxpayers who are struggling to make ends meet. This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.
Here’s what the IRS has to offer struggling taxpayers:
1, Penalty Relief. The IRS has announced penalty relief for the unemployed on failure-to-pay penalties. Under the new rules, a six-month grace period on failure-to-pay penalties will be made available to taxpayers; interest on unpaid taxes will continue to accrue during this time. The grace period is available for the tax year 2011 only and limited to balances that are $50,000 and under. The tax, interest and any other penalties must be fully paid by October 15, 2012.
Taxpayers who qualify for the relief are those wage earners who have been unemployed at least 30 consecutive days during 2011 or through April 17, 2012, and self-employed individuals who experienced a dip in business income of at least 25% due to the economy. There are also income limitations: $200,000 for taxpayers filing married filing jointly or $100,000 for taxpayers filing single or head of household.
To apply for relief, taxpayers meeting the eligibility criteria will need to complete a new federal form 1127A (downloads as a pdf).
2, Streamlined Collections. The IRS has also announced that 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. This means that taxpayers who owe up to $50,000 in back taxes, including penalty and interest, can enter into a streamlined agreement with the IRS to pay the balance over time. The amount of time to pay has also been extended to 72 months (up from 60 months). Penalties may be reduced but interest will continue to accrue while the balance is outstanding.
To take advantage of the new threshold, taxpayers need to file a Collection Information Statement, federal form 433-A or federal form 433-F (each will download as a pdf).
If you have questions about eligibility, you’ll want to contact your tax pro or call the IRS at 1.800.829.1040. Hopefully, these small steps from IRS will help some taxpayers get back on their feet.
