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‘Fresh Start’ for taxpayers who owe

By Kay Bell · Bankrate.com
Thursday, March 8, 2012
Posted: 12 pm ET

According to all sorts of data, the economy is picking up. But sometimes those figures are slow to trickle down to real-world circumstances. That's why, says the Internal Revenue Service, it is expanding its Fresh Start program to help folks who are having trouble paying their tax bills.

About this time last year, the IRS announced that it was easing up on tax liens. IRS Commissioner Doug Shulman also instructed his staff to work with taxpayers to ensure that tax responsibilities were met, but in ways that didn't add to taxpayers' economic woes.

Now the IRS is expanding its Fresh Start initiative in two more areas. It's providing new penalty relief to the unemployed and making tax payment installment agreements available to more people.

Unemployment tax penalty relief: Some taxpayers now will get a six-month grace period to pay their taxes and won't face any failure-to-pay penalties as long as the tax due, interest and any other penalties are fully paid by Oct. 15.

This penalty relief will apply to two groups of taxpayers:

  1. Individuals who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 tax-filing deadline.
  2. Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

There are, however, income limits. To qualify for the penalty relief, a single or head-of-household taxpayer's income must not exceed $100,000. A married couple filing a joint return qualifies if their income is no more than $200,000.

Also, if you owe more than $50,000 in taxes, you won't qualify for the penalty relief.

If you do meet these requirements, though, you can file the new Form 1127A to be relieved of the nonpayment penalty charges.

Easier installment agreements: The IRS also is making it easier for more folks to pay off their tax bills over time. You now can get an installment payment plan with the IRS without having to provide the IRS with a financial statement if your tax bill is as much as $50,000.

Previously, this streamlined, no-doc process was restricted to taxpayers who owed $25,000 or less.

Under the plan, individuals with larger tax bills can stretch their payments out for up to 72 months. Previously, the maximum payment plan was over 60 months.

To qualify for the expanded streamlined installment agreement, you must agree to have monthly payments directly debited from your bank account. And while penalties are reduced under these plans, interest on the tax debt continues to accrue.

If you're interested in an installment agreement, go to the IRS' Online Payment Agreement page at its website.

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