Monthly Archives: April 2012

IRS Expands Its Fresh Start Initiative; Provides Penalty and Installment Payment Relief

by Michael W. Blitstein, CPA 

The IRS announced enhancements to its “Fresh Start” initiative by providing higher dollar thresholds for using the streamlined application process for installment agreements and new penalty relief for qualified individuals affected by the economy in 2011. The IRS doubled the dollar threshold amount and increased the maximum term for streamlined installment agreements. Unemployed taxpayers, if they file their returns after April 17th, and the self-employed may be eligible for late payment penalty relief. The agency has updated its online materials about the Fresh Start initiative to reflect the new relief.

Fresh Start

The IRS launched its Fresh Start initiative in early 2011 to help taxpayers affected by the economic slowdown. The IRS modified its lien policies by increasing the lien-filing threshold to $10,000 from $5,000 and by creating a process in which a lien will be released if the taxpayer qualifies for a direct-debit installment agreement. Additionally, it eased and streamlined installment agreements to make them available to more small businesses. Small businesses with an outstanding tax liability balance of $25,000 or less are able to apply for an installment agreement without providing a financial statement and financial verification. Additionally, they could apply for up to 60 months to pay off their outstanding tax liability.

Installment Agreements

Effective immediately, the IRS has raised the threshold amount for using the streamlined installment agreement without having to provide a financial statement or verification from an outstanding tax liability of $25,000 or less to a balance due of $50,000 or less. The agency also increased the maximum term for streamlined installment agreements from the current 60 months to 72 months.

Taxpayers must agree to direct-debit payments. Under the Direct Debit Installment Agreement (DDIA) system, funds are automatically debited from a taxpayer’s bank account for the agreed upon installment amount.

Taxpayers should file Form 9465-F, Installment Agreement Request, but do not need to provide a financial statement, Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-F, Collection Information Statement. Taxpayers seeking installment agreements exceeding $50,000 will still need to furnish a financial statement. Taxpayers must also pay down their balance due if over $50,000 to take advantage of the expanded streamlined program.

Penalty Relief

Taxpayers normally have until April 17, 2012, to file their 2011 tax returns and pay any tax due. Taxpayers requesting an extension of time to file have until October 15, 2012, to file their 2011 returns. This year, certain unemployed and self-employed taxpayers may be eligible for a six-month grace period on failure-to-pay penalties. Penalty relief is available to the following two groups of taxpayers:

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

The taxpayer’s 2011 calendar year balance must not exceed $50,000. Additionally, the taxpayer’s income must not exceed $200,000 if he or she files a joint return or $100,000 if he or she files as single or head of household.

The request for relief from the failure to pay penalty is only available for tax year 2011 and only if all taxes, interest and any other penalties are paid in full by October 15, 2012.

Generally, taxpayers who fail to pay taxes owed by the original due date are subject to a failure to pay penalty of 0.5 percent of the unpaid taxes for each month or part of a month after the due date that the taxes are not paid. The penalty can reach 25 percent of the unpaid taxes. Thus, under this program, taxpayers will have until October 15, 2012, to avoid the penalty.

The IRS is legally required to continue to charge interest at the current annual rate of three percent on the unpaid tax liability. It does not have the authority to waive statutorily imposed interest. Taxpayers should note that the failure to file penalty remains in effect at 5 percent a month with a 25 percent cap.

Offers in Compromise

The IRS also reminded taxpayers that the expanded streamline Offer in Compromise (OIC) program, one of the first Fresh Start Initiative, is still available. The streamlined OIC application is available to more taxpayers, has fewer financial document requirements, and, most importantly to struggling taxpayers, a greater flexibility and more common-sense approach to determining feasibility of collection.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

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Lawmakers Set Stage for Tax Reform Debate After April Recess

by Michael W. Blitstein, CPA 

Democrats and Republicans have begun a two week recess with lawmakers returning home to promote very different visions of tax reform. Before recessing, the House passed a Republican budget blueprint calling for individual and business rate cuts, the Ways and Means Committee approved a GOP small business tax package, and the Senate prepared to debate the so-called “Buffett Rule.” Congress also approved a short-term extension of Federal transportation excise taxes and funding.

The small employer incentive in the Senate bill appears to be a good and targeted expansion of the employer credit in the HIRE Act, Adam Lambert, CPA, managing director, Employment Tax Services, Grant Thornton, LLP, New York, told CCH: “The proposed credit has less limitations and hurdles for small businesses to jump.”

GOP budget

The House voted to approve the GOP budget blueprint on March 29th. The GOP budget proposes to cut the corporate tax rate to 25 percent, reduce the individual tax rates to 10 and 25 percent and eliminate unspecified tax preferences.

Senator Rob Portman, R-Ohio, recently said that he is developing a bipartisan legislative proposal to overhaul corporate taxation and reduce the U.S. corporate tax rate to 25 percent. Portman said his proposal would be revenue-neutral by reducing tax preferences.

Buffett Rule

Democratic leaders have indicated that the Senate will vote on the Buffett Rule after the two week recess. The vote is expected to be on April 16th on the Paying a Fair Share Act, which would subject taxpayers earning over $2 million to a 30 percent minimum federal tax rate. The tax would be phased-in for taxpayers with incomes between $1 million and $2 million.

 Small Businesses

On March 28th, the Ways and Means Committee approved the Small Business Tax Cut Act along party lines. The GOP bill would allow a deduction for 20 percent of qualified domestic business income of the taxpayer for the tax year, or taxable income for the tax year, whichever is less. However, a taxpayer’s deduction for any tax year could not exceed 50 percent of certain W-2 wages of the qualified small business.

In the Senate, the Democratic bill would provide a 10 percent income tax credit on new payroll (through either hiring or increased wages) added in 2012. The maximum increase in eligible wages would be capped at $5 million per employer and the amount of the credit would be capped at $500,000. The bill would also extend 100 percent bonus depreciation through the end of 2012.

Transportation

Before recessing, the House and Senate approved an extension of Federal transportation excise taxes and funding, which President Obama signed on March 30th. The extension was necessary because Congress failed to pass a comprehensive transportation bill before the expiration of transportation tax authority and funding.

The Senate-passed transportation bill has become bogged down in the House. Some House members are opposed to its non-transportation tax provisions

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com