The Internal Revenue Service is launching a major expansion of its Fresh Start initiative to help make it easier for struggling taxpayers to meet their tax obligations.
Under new program provisions, some taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay tax penalties.
In addition, the IRS is doubling the dollar threshold for taxpayers eligible for installment agreements to help more people qualify for that program.
“We have an obligation to work with taxpayers who are struggling to make ends meet,” IRS Commissioner Doug Shulman said.
“This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have under way to help struggling taxpayers.”
The IRS said to help those in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and those who are self-employed.
The penalty relief will be available to two categories of taxpayers:
• Wage earners who have been unemployed at least 30 consecutive days during 2011 or 2012 up to the April 17 deadline for filing a federal tax return this year.
• Self-employed individuals who experience a 25 percent or greater reduction in business income in 2011 due to the economy.
Under those new provisions, when a taxpayer files for an extension of time to pay, they will be relieved of the failure-to-pay penalty for tax year 2011 if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.
The failure-to-pay penalty is generally one-half of 1 percent per month with an upper limit of 25 percent.
Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available at IRS.gov/form1127.
The new Fresh Start provisions also will give more taxpayers the opportunity to use streamlined installment agreements to catch up on back taxes.
The IRS said effective immediately, 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.
“Taxpayers 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 IRS said, noting the maximum term for streamlined installment agreements also has been raised to 72 months from the current 60-month maximum.
Taxpayers can set up an installment agreement with the IRS by going to the “On-line Payment Agreement” page at IRS.gov and following the instructions.