IRS Going Soft It Its Old Age?

Displaying an uncharacteristic degree of largesse, IRS recently made known some penalty relief and expanded installment agreement rules for taxpayers beleaguered by the present miserable economy.

Under the new “Fresh Start” program, certain folks who had been unemployed for 30 days or longer are able to avoid the failure to pay penalties.  Also, IRS has doubled the dollar threshold for folks eligible for installment agreements.

Penalty relief

Get this:  a six month grace period from imposition of failure to timely pay penalties was made available to certain wage earners and self-employed individuals.  The request for an extension of time to pay (heretofore almost unheard of) will result in relief from the failure to pay penalties for 2011 as long as the tax, interest and any other applicable penalties (yes, there are no shortage of penalties) are all fully paid by October 15, 2012.

So, who’s eligible?  Wage earners who have been unemployed for at least 30 consecutive days during 2011 or 2012 (up to the recent April 17 filing deadline), and self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011.

There are income limits applicable to the determination of who qualifies, but they seem uncharacteristically high to us (compared to other areas of the law to which such limits apply):  $200,000 on a joint return and $100,000 for single or head of household filers.

Installment agreements

Previously, the threshold for using an installment agreement without having to prove to IRS that you’re broke (by providing them a copy of your financial statement) was $25,000; now it’s $50,000!  And the maximum term for “streamlined installment agreements” has also been raised to 72 months from the previous 60 month maximum!

Now if you’re a California filer, don’t spend all those penalty savings in one place.  Probably because the Golden State is getting broker and broker by the day, it’s no surprise that the Franchise Tax Board does NOT have a “Fresh Start” program similar to the one being run by the Feds.  But California law does provide that you might escape late payment penalties if your inability to pay Governor Moonbeam is due to your depressed financial circumstances – under perhaps a “reasonable cause” argument.

It’s worth a try, in any case.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He may be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.

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