The IRS recently expanded their Fresh Start program to help taxpayers who owe back taxes and can’t afford to pay them by the April 15 ta deadline.

The penalty relief part of the IRS initiative also relieves select unemployed taxpayers from failure-to-pay penalties. IRS penalties can really add up fast and are one of the largest factors a taxpayer with back taxes faces.

For example, the IRS Fresh Start Penalty Relief Initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes. Interest still applies on the 2011 taxes from April 15, 2012 through when the tax is paid.

The good news is that you won’t face failure-to-pay penalties if you pay your tax, interest and any other penalties in full by Oct. 15 of 2012.

Let’s talk about the two categories of tax payer who can qualify for the new relief:

1. If you are a wage earner who has been unemployed for at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 tax deadline.
2. You are self-employed and experienced a 25% or larger reduction in business income in 2011 due to the economy.

Here’s how to qualify

1. Your adjusted gross income must not exceed $200,000 if married filing jointly or $100,000 if your filing status is single, married filing separately, head of household, or qualifying widower.
2. Your 2011 balance due can not exceed $50,000.

Taxpayers who qualify need to complete a new Form 1127A to request the 2011 penalty relief.

Installment agreements
An installment agreement is a payment option for those who cannot pay their entire tax bill by the due date. The Fresh Start provisions give more taxpayers the ability to use streamlined installment agreements to catch up on back taxes and also more time to pay.

Here are more specifics from the IRS website:

“The new threshold for requesting an installment agreement has been raised from $25,000 to $50,000. This option requires limited financial information, meaning far less burden to the taxpayer. The maximum term for streamlined installment agreements has been raised to six years from the current five-year maximum.

If your debt is more than $50,000, you’ll still need to supply the IRS with a Collection Information Statement (IRS Form 433-A or Form 433-F). You also can pay your balance down to $50,000 or less to qualify for this payment option.

With an installment agreement, you’ll pay less in penalties, but interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, you must agree to monthly direct debit payments.

You can set up an installment agreement with the IRS through the On-line Payment Agreement (OPA) page at www.irs.gov or we can help you if you’d rather not deal with the IRS yourself.

IRS Offer in Compromise
The IRS has expanded the Offer in Compromise (OIC) program to cover a larger group of taxpayers. An Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s back taxes for less than the full amount owed.

The IRS will not typically accept an Offer in Compromise settlement unless they believe that you can’t pay your back taxes in full, as a lump sum, or a payment agreement. The Offer in Compromise process is pretty well defined but results vary widely. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay and its critical to know the ins and outs of what they look for.

If you’re interested in working with Jeff Fouts to represent you before the IRS he has 19 years of experience as a tax attorney and deals with the IRS every day to handle back taxes, remove tax levy’s, negotiate Offer in Compromise agreements and IRS installment agreements.