The Internal Revenue Service has expanded its “Fresh Start”
initiative to help struggling taxpayers who owe taxes. The following four tips
explain the expanded relief for taxpayers.
Penalty relief Part of the initiative relieves some unemployed taxpayers
from failure-to-pay penalties. Penalties are one of the biggest factors a
financially distressed taxpayer faces on a tax bill.The Fresh Start Penalty
Relief Initiative gives eligible taxpayers a six-month extension to fully pay
2011 taxes. Interest still applies on the 2011 taxes from April 15, 2012 until
the tax is paid, but you won’t face failure-to-pay penalties if you pay your
tax, interest and any other penalties in full by Oct. 15, 2012.
1. The penalty relief is available to two categories of
* Wage earners who have been unemployed at least 30 consecutive days during
2011 or in 2012 up to this year’s April 17 tax deadline.
* Self-employed individuals who experienced a 25 percent or greater
reduction in business income in 2011 due to the economy.
To qualify for this penalty relief, your adjusted gross income must not
exceed $200,000 if married filing jointly or $100,000 if your filing status is
single, married filing separately, head of household, or qualifying widower.
Your 2011 balance due can not exceed $50,000.
Taxpayers who qualify need to complete a new Form 1127A to request the 2011
penalty relief. The new form is available on www.irs.gov
or by calling 1-800-829-3676 (TAX FORM).
2. Installment agreements An installment agreement is a
payment option for those who cannot pay their entire tax bill by the due date.
The Fresh Start provisions give more taxpayers the ability to use streamlined
installment agreements to catch up on back taxes and also more time to pay.
The new threshold for requesting an installment agreement has been raised
from $25,000 to $50,000. This option requires limited financial information,
meaning far less burden to the taxpayer. The maximum term for streamlined
installment agreements has been raised to six years from the current five-year
If your debt is more than $50,000, you’ll still need to supply the IRS with
a Collection Information Statement (Form 433-A or Form 433-F). You also can pay
your balance down to $50,000 or less to qualify for this payment option.
With an installment agreement, you’ll pay less in penalties, but interest
continues to accrue on the outstanding balance. In order to qualify for the new
expanded streamlined installment agreement, you must agree to monthly direct
You can set up an installment agreement with the IRS through the On-line
Payment Agreement (OPA) page at www.irs.gov
3. Offer in Compromise Under the first round of Fresh Start
in 2011, the IRS expanded the Offer in Compromise (OIC) program to cover a
larger group of struggling taxpayers. An Offer in Compromise is an agreement
between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for
less than the full amount owed.
The IRS recognizes many taxpayers are still struggling to pay their bills so
the agency has been working on more common-sense changes to the OIC program to
more closely reflect real-world situations.
Generally, an offer will not be accepted if the IRS believes that the
liability can be paid in full as a lump sum or through a payment agreement. The
IRS looks at the taxpayer’s income and assets to make a determination regarding
the taxpayer’s ability to pay.
4. More information A series of eight short videos are
available to familiarize taxpayers and practitioners with the IRS collection
process. The series “Owe Taxes? Understanding IRS Collection
Efforts,” is available on the IRS website, www.irs.gov.