IRS Expands Tax Penalty Relief
Relief to Struggling Taxpayers Issued Just Ahead of Tax Deadline
The IRS recently expanded its “Fresh Start” initiative to help struggling taxpayers meet their tax obligations.
Typically, taxpayers are assessed a penalty for not fully paying the taxes shown on their annual income tax return. The penalty runs at a rate of .5% per month, not to exceed 25%. Taxpayers who extend their tax returns are also subject to this penalty if they fail to pay at least 90% of the tax that is eventually shown on the return they file later.
The IRS is providing certain taxpayers – wage earners and self-employed individuals – a six-month grace period on this particular penalty. Taxpayers who qualify will not be assessed the .5% monthly penalty if they fully pay their tax (and any accrued interest) on or before October 15, 2012.
To qualify, taxpayers must fall into one of two groups:
- Wage earners who were unemployed at least 30 consecutive days during 2011 or 2012 (through April 17, 2012) ; and
- Self-employed individuals who experienced a 25% or greater reduction in revenue during 2011.
Income reported on tax returns for individuals in these groups must be less than $100,000 ($200,000 on a joint return). To seek the relief, taxpayers must file Form 1127-A – Application for Extension of Time for Payment of Income Tax. The form can be found on the IRS website at www.irs.gov under Forms and Publications.
We certainly applaud the IRS on their outreach efforts to assist taxpayers who are working as hard as they can to balance budgets, including paying their fair share of income taxes. Most clients want to do the right thing and feel badly when they cannot make ends meet at tax time. In most cases, all they need is time. That is why this new relief provision is so important. In addition, the IRS has liberalized and streamlined the process for granting installment payment plans. We can help evaluate your situation and use these relief provisions to your benefit.