IRS Gives Delinquent Taxpayers a Fresh Start

by Redeeming Riches on March 8, 2013


As tax day rapidly approaches, countless Americans are scrambling to determine how much they may have to pay and what deductions may be available to them. This can be a particularly troublesome period for those who are delinquent on their taxes. However, these individuals now have a chance to deal with the issue of unpaid taxes with the Fresh Start initiative that is being offered by the Internal Revenue Service (IRS).

The IRS rarely grants tax relief in the payment of tax penalties, but delinquent taxpayers should be relieved by this program, which has two principal parts. Firstly, the IRS is willing to waive the penalty facing those who did not pay their 2011 income taxes. The late payment penalty is normally half a percent for each month or part of the month that the taxes were not fully paid. The interest on the unpaid balance will still have to be paid at the current annual rate of 3 percent. However, the program should help those who can pay their taxes in full by October of this year.

The second element of the Fresh Start initiative is the expanded availability of the streamlined installment plan. This program gives individuals and families the opportunity to pay their taxes in a specified period of time without having to face the imposition of a federal tax lien, which can adversely affect personal credit ratings. Normally, streamlined installment arrangements are not available on outstanding balances of more than $25,000. Under Fresh Start, this amount has been doubled, with the stipulation that it will be repaid in no more than 72 months.

Taxpayers must meet certain criteria in order to take advantage of the initiative. Those seeking assistance must have been employed for at least 30 consecutive months in 2011 or during the period between January 1 and April 17, 2012. They can also satisfy the requirement if they are self-employed and have suffered a reduction in their incomes of at least 25 percent and have an income of not more than $100,000 for single individuals or $200,000 for married couples, and they file their 2011 taxes by April 17, although they will be given the opportunity to request an extension of six months. In order to satisfy the streamlined aspect of the program, taxpayers must not have a balance of more than $50,000 on their 2011 returns, and will have to complete the payment process by October 15. Meeting these requirements, the taxpayers will be able to remove the failure-to-pay penalty by filling out the tax form designated 1127A.

The streamlined program differs from plans that allow payments to take place over a longer period of time or which involve partial payments. No matter the plan being considered, the IRS recommends that taxpayers with outstanding balances first consult with authorized tax practitioners, whether they be certified public accountants or tax attorneys. A professional in the field will have the ability to analyze individual situations and help determine what is best for each taxpayer.

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