Tax Lawyer, Former IRS – IRS Problems & Tax Resolution – Broward, Dade, Palm Beach County
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One of the hot new programs of the IRS for tax settlements is called the Fresh Start Program which is saving thousands of dollars for taxpayers owing money to the IRS. It is also helping taxpayers in the areas of penalty relief, installment payments and offers in compromise. Below is the latest from the IRS.
IRS Penalty Tax Relief
The IRS new penalty relief is for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.
To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain 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 IRS penalty relief will be available to two categories of taxpayers:
1. 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.
2. Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.
This penalty relief 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.
This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.
Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief.
The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline.
The IRS 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 percent on an annual basis.
Installment Agreements or Payment Agreements
The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.
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 is a huge reduction in taxpayer burden to the IRS.
A taxpayer who owe up to $50,000 in back taxes will now 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. Yes you now have over 72 months to back back the IRS plus interest, that never goes away.
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 can also pay down their balance due to $50,000 or less to take advantage of this payment option.
An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although 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.
The Offer in Compromise or the Tax Debt Settlement
Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.
An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.
For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.
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.
To see if you qualify for any of these new programs call us today for a no cost professional tax consult.
Tax Lawyer, Former IRS – IRS Problems & Tax Resolution – Broward, Dade, Palm Beach County – SOUTH FLORIDA
