Monday, April 9, 2012

IRS Expands Penalty and Installment Payment Relief

The IRS announced that it has expanded its "Fresh Start" initiative to help struggling taxpayers by providing late payment penalty relief and making installment agreements available to more taxpayers. Failure to pay penalty relief applies to two categories of taxpayers: (1) wage earners who have been employed at least 30 consecutive days during 2011or in 2012 (up to the April 17th filing deadline); and (2) self-employed individuals who experienced a 25% or greater reduction in business income in 2011, due to the economy. To qualify, the taxpayer’s income must not exceed $100,000 for single and head of household filers or $200,000 for joint filers. In addition, the 2011 tax liability due cannot exceed $50,000. To seek relief, the taxpayer must file Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship. Those qualifying for relief will avoid the penalty until October 15, 2012, but will be responsible for interest on the tax until paid. With respect to installment agreements, the IRS has raised the threshold limit to $50,000, meaning that taxpayers who owe up to $50,000 in back taxes may qualify for an installment agreement without having to provide financial information to the IRS. In addition, the IRS extended the maximum term for installment agreements to 72 months.