The Internal Revenue Service has significantly expanded its "Fresh Start" initiative that is designed to ease penalties on the unemployed and has also made installment agreements available to more people. This includes a six-month grace period for failure-to-pay for some of those who have been unemployed for more than 30 days.
Under the new plan, requests for an extension to pay will result in relief from the penalty for tax year 2011 if tax, interest and any other penalties are paid by October 15 this year. This applies to wage earners who have been unemployed at least 30 days in 2011 or until the April 17 filing deadline this year. Also covered are self-employed individuals who experienced a reduction of business income of more than 25 percent in 2011.
To be eligible, the annual income for those married filing jointly cannot exceed $200,000 while those filing as single or head of household must earn no more than $100,000. Penalty relief also is restricted to those with a $50,000 or less balance due for 2011.
The threshold for installment agreements has been raised to $50,000 from $25,000. Those who owe up to $50,000 in back taxes can now enter a streamlined agreement with the IRS. However, those who owe more can pay down amounts of more than $50,000 to qualify. The maximum term for installments has also been increased to 72 months from 60 months.
In addition, the Offer in Compromise program has been enlarged with the IRS having more flexibility with financial analysis for determining reasonable collection potential. The IRS will generally not accept an offer if it believes that the tax liability can be paid in full as a lump sum or via a payment agreement. A taxpayer's income and assets are used in making determinations.