As many taxpayers breathe a collective sigh of relief with April’s tax deadline now in the recent past, still others have serious tax issues yet to be resolved with the Internal Revenue Service (IRS). We have good news for those hoping to resolve their unpaid tax problems – the IRS expanded its tax relief assistance under the “Fresh Start” program.
IRS “FRESH START” TAX INITIATIVE
There are three tax relief programs that the IRS hopes will help many more distressed filers get their tax obligations paid off. Those programs include:
● Undue Hardship for Unemployed Filers
The individual taxpayer who was unemployed for 30 consecutive days or longer between January 1, 2011, and April 17, 2012, can avoid the failure-to-pay penalty by applying for a six-month extension, so long as the tax, penalty and interest owed is paid by October 15, 2012. For certain filers, this six-month grace period from failure-to-pay penalties may result in significant savings. To be eligible, the filer’s adjusted gross income (AGI) must be under $100,000 ($200,000 if married filing jointly) and the tax owed must be less than $50,000.
● Undue Hardship for Self-Employed Filers
Similar to the unemployed filer (above), the self-employed individual who suffered a 25% or more reduction in 2011 business income “due to the economic downturn” can apply for a six-month extension to avoid a failure-to-pay penalty and by paying any tax, penalty and interest due by October 15, 2012. The taxpayer must owe less than $50,000 and his or her AGI must be less than $100,000 ($200,000 when married filing jointly).
● Online Payment Agreements (OPA)
The IRS now allows eligible taxpayers who have filed all of their federal tax returns and who have a tax liability of $50,000 or less (including tax, penalties and interest) to enter into an online installment agreement for monthly payments. Without having to provide a financial statement to the IRS, the taxpayer may voluntarily enter into a streamlined OPA before he or she even receives any form of notice from the IRS over an unpaid tax. (Just knowing that the tax calculated from the return is more than the taxpayer can pay in a lump sum is sufficient.) Although the payment period is dependent upon what the taxpayer can afford to pay each month, the maximum installment period cannot exceed six years (72 months).
The OPA program was opened up to include greater numbers of struggling taxpayers. First, the streamlined process was made available to those with a tax liability of $50,000 (previously, any taxpayer owing over $25,000 could not use the OPA program and was required to provide a financial statement to the IRS). Second, the maximum installment period for repayment was increased to 72 months (that’s substantially longer than the prior 60-month maximum period). Taxpayers who enter into an OPA may have monthly installment payments deducted automatically from their bank accounts. They also