IRS Fresh Start Initiative

May 8, 2012

Although most economists now believe that we’re no
longer in a recession, the reality is many taxpayers are still hurting
financially. To offer some relief to these individuals, the IRS has extended
their “Fresh Start” initiative to help those who are struggling to pay their
taxes. There are three components to this expanded relief initiative.

Penalty Relief
Because penalties are typically the biggest factor for a financially distressed
taxpayer when it comes to paying a tax bill, the Fresh Start Penalty Relief
Initiative gives eligible taxpayers an extension of six months to fully pay
2011 taxes. Interest still applies on the taxes from April 17, 2012 until the
tax is paid, but there are no failure-to-pay penalties if the taxes, interest,
and any other penalties are paid in full by October 15, 2012.

Penalty relief is available to taxpayers who are:

  • Wage earners who have been unemployed
    for at least 30 consecutive days during 2011 or in 2012 up to this year’s April
    17 tax deadline
  • Self-employed taxpayers who experience
    a 25 percent or greater reduction in business income in 2011 due to the
    economic slowdown

To be able to qualify for this tax relief, your
adjusted gross income cannot 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 tax balance may not exceed $50,000.

Installment Agreements
For taxpayers who cannot pay their entire tax bill by the due date, an installment
agreement is a payment option. Fresh Start gives a greater number of taxpayers
the ability to use installment agreements to catch up on back taxes and more
time to pay.

The threshold for requesting an installment agreement has been raised from $25,000 to $50,000. If your debt exceeds
$50,000, you’ll need to supply the IRS with a Collection Information Statement
(Form 433-A or Form 433-F). You can also pay your balance down to $50,000 or
less to qualify for this payment option.

You’ll pay less in penalties with an installment
agreement, but interest will continue to accrue on the outstanding balance.
Monthly direct debit payments are required as part of this initiative.

Offer in Compromise
The IRS has expanded the Offer in Compromise (OIC) program to help a larger
percentage of struggling taxpayers. An OIC is an agreement between a taxpayer
and the IRS to settle tax liabilities for less than the full amount owed.
Because the IRS acknowledges that many individuals are struggling to pay their
bills, they have enlisted some common sense changes to the OIC program to
better assist those in need. The IRS assesses a taxpayer’s income and assets to
determine their ability to pay.

Are you having difficulties in paying your tax
obligations? Contact the team at Wallace
& Associates
. They can provide you with the latest
information and programs available to taxpayers and advise you on the best
strategies for your specific needs.