IRS Expands Installment Agreement Availability, Provides Penalty Relief

IRS Expands Installment Agreement Availability, Provides Penalty Relief 
“Fresh Start” initiative, provides penalty relief for unemployed...

The IRS announced an expanded “Fresh Start” initiative Wednesday, March 07th, 2012, to help struggling taxpayers with a number of measures for relief (IR-2012-31). One of the most noteworthy of these measures is the abatement for the 2011 tax year of the failure-to-pay penalty (0.5% per month of the tax due up to a maximum of 25%) until Oct. 15, 2012, provided the tax, interest, and any other penalties due are paid by that date. The IRS cautions that taxpayers who qualify should still file their 2011 returns by April 17, 2012, or file for an extension to Oct. 15, 2012, because failure-to-file penalties are not being waived.

The taxpayers who qualify for this penalty relief include:

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

• Certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties; and, 
• The threshold for streamlined installment agreements has been raised, effective immediately, from $25k to $50k. 
• Let's start with the penalty relief. The failure-to-pay penalty relief is a six-month grace period available to two categories of taxpayers:

• As always, what the large print giveth, the small print taketh away. The penalty relief is means tested. In this case, a taxpayer's income may not exceed $200k (MFJ) or $100k (HoH/Single). Further, the relief is restricted to those whose 2011 balance due does not exceed $50k.  IRS has a form for that (Form 1127A).  
• The more interesting provision, however, is the new streamlined IA ceiling. The big deal here is that streamlined agreements don't require completing the Collection Information Statement (Form 433-A or Form 433-F in this case), which saves the taxpayer a tremendous amount of time and heartache. Further, the maximum length of the streamlined IA is increased by 12 months, and now stands at 72 months (six years), up from the prior 60 months (5 years).

Source:  NAEA, irs.gov