March 19, 2012

A Kinder, Gentler IRS Announces Plans to Help Struggling Taxpayers

By Diane Giordano, Partner, Tax & Business Services

A Kinder, Gentler IRS Announces Plans to Help Struggling Taxpayers
On March 7, 2012, The Internal Revenue Service announced the expansion of its “Fresh Start” initiative to help struggling taxpayers by providing penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new provisions, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the dollar threshold for taxpayers eligible for Installment Agreements is doubled in an effort to help more people qualify for the program.

A six-month grace period on failure-to-pay penalties will now be made available to two categories of taxpayers, providing the taxpayer’s income does not exceed $200,000 (joint filer) or $100,000 (single filer or head of household.) This penalty relief will also apply to taxpayers whose calendar year 2011 balance due does not exceed $50,000. The filing categories include:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011(or in 2012 up to the April 17 deadline for filing a federal tax return this year), and
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

The request for an extension of time to pay tax will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and penalties are paid by Oct. 15, 2012. (However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.)

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek 2011 penalty relief. The new form is available on

The Fresh Start program also encourages delinquent taxpayers the ability to become current on back taxes still due through a streamlined installment payment process. An installment payment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments

The threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant taxpayer friendly action on behalf of the IRS because taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches their payments over a series of months or years without the need to provide a financial statement. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F).

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on and following the instructions.

These changes supplement a number of efforts by the IRS to help struggling taxpayers. If you are struggling with outstanding taxes due, you may benefit from these new initiatives.Contact the IRS at or your Marcum Tax Professional for more information.