January 3, 2013

The IRS Fresh Start Initiative, first announced February, 2011, has had one goal: to make it easier for individuals and businesses to pay their back taxes and penalties. The Initiative has been expanded since then, but still holds true to its original purpose. How exactly will it affect you if you’re struggling to pay up? Here are the four components that Fresh Start has changed for your benefit.

Waived Penalties

Originally, when paying and filing your taxes, missing the April deadline meant immediate interest charges and penalties. But with the Fresh Start Initiative, qualifying unemployed taxpayers can apply to have Failure-to-Pay penalties waived for six months. This means that individuals have until October 15th, 2013 to pay their 2012 taxes.

The six-month extension is available to individuals who were unemployed for at least 30 consecutive days during 2012, or prior to tax day in April 2013. For self-employed taxpayers to qualify, they must show that they had a 25 percent decrease in business income during 2012.

Couples earning more than $200,000 annually, or individuals earning more than $100,000 annually do not qualify for the extension. If a person’s tax balance was greater than $50,000 at the end of 2012, they are also disqualified.

Offer in Compromise (OIC)

The Offer in Compromise is an option you can use when you can’t afford to pay the full balance of what you owe to the IRS. It allows you to settle your tax debt for less than the full amount owed, legally.

The IRS has incorporated the Streamlined Offer in Compromise to help the investigation process move faster. The process is more efficient, including fewer requests for more information and the option of requesting information by phone instead of by mail. Additionally, the changes add more flexibility to the process by shortening the OIC repayment process to two years.

New Installment Guidelines

Installment agreements allow a person to make monthly payments on their tax debt if they can’t afford to pay the total at once, and/or aren’t eligible for an Offer in Compromise. In the past, once an individual’s tax balance reached $25,000, the IRS began conducting a financial analysis of the person’s income and expenses to determine how much the taxpayer would pay per month. Additionally, a Notice of Federal Tax Liens was filed.

Under Fresh Start, more taxpayers will be able to avoid this invasive process altogether, as the tax balance threshold has been raised to $50,000. At that point, once the installment agreement process is started, you’ll now have six years to pay the debt off. If you are considering entering an installment agreement, let us know and we’ll make sure you qualify.

Notice of Federal Tax Liens

If an individual fails to pay their tax debt the government can file a claim against that person’s property with a federal tax lien. “Property” includes everything an individual owns, including real estate, vehicles and financial assets. The Notice of Federal Tax Lien alerts creditors that the government has a legal right to a taxpayer’s property. This may limit your ability to get credit.

Similar to installment agreements, FSI has raised the Notice of Federal Tax Lien filing threshold to $10,000 from $5,000. The IRS might still choose to file at an amount less than $10,000, but it’s not as automatic as before.

The IRS Fresh Start Initiative is a big move to get taxpayers back on their feet. Wondering if you’re eligible? Check out Do I Qualify for the Fresh Start Initiative, and give us a call.

If you’re struggling with paying your taxes, don’t know how to fill out an Offer in Compromise or don’t know which forms to file, contact Optima Tax Relief today. We’ll help you take advantage of the Fresh Start Initiative, and deal with the IRS so you don’t have to.

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