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IRS lessens penalties for the unemployed

A major effort to increase compliance has been underway at the IRS in recent years. At the same time, unemployment nationwide has increased significantly. An IRS program is targeting those who have been unemployed or underemployed, while also seeking to encourage compliance and the payment of past-due taxes. The new payment plan is part of the IRS' "Fresh Start" program.

In a recent news report, an IRS commissioner said that the program changes should be helpful to both the taxpayer and to the IRS. For those who are struggling to make ends meet, the IRS will now offer a six-month grace period of relief from failure-to-pay penalties. The penalty relief applies to two types of individuals:

  • Self-employed individuals with a 25 percent or greater loss of business income in 2011
  • Wage earners who were unemployed 30 consecutive days during 2011 or up until the April 17 filing date

For those who have not yet filed their taxes, or who file an extension for the 2011 tax year, he or she will not be charged a failure-to-pay penalty by the IRS. However, the taxpayer will still owe his or her taxes and any interest or penalties, other than the failure-to-pay penalty.

Depending on how much is owed, this could make a significant difference in the amount that would be paid to the IRS. The failure-to-pay penalty starts at one-half of one percent and is capped at 25 percent.

In addition to the failure-to-pay penalty grace period, the IRS is also offering a higher threshold for individuals seeking to use an installment agreement to pay their back-taxes. The old threshold of $25,000 has been raised to $50,000 so individuals with as much as $50,000 owed to the IRS will be able to work out an installment payment plan with the IRS. The length of time for re-payment has also been increased from 60-months to 72-months.

The IRS tax code is under seemingly constant revision and can be confusing to taxpayers. However, confusion or lack of knowledge does not make one exempt from compliance, and those failing to comply can suffer serious financial consequences. Fortunately, an attorney who focuses on tax laws can be of great assistance to either prevent errors, or deal with the consequences of taxpayer mistakes.

Source: The Salt Lake Tribune, "IRS eases penalty payment plan for struggling Utah taxpayers," March 12, 2012

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