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Fresh Start Penalty Relief

The Fresh Start Penalty Relief Initiative provides eligible taxpayers with a six-month extension of time to fully pay 2011 taxes.  Interest will run on the 2011 taxes from April 15, 2012, until the tax is paid but no failure-to-pay penalties will be incurred if tax, interest and any other penalties are paid in full by October 15, 2012.

Eligibility
Your 2011 tax liability must be less than $50,000, your adjusted gross income must be less than $100,000 ($200,000 if married filing jointly), and you or your spouse (if married filing jointly) must be a:

  • Wage earner who has been unemployed at least 30 consecutive days between January 1, 2011 and April 15, 2012; or

  • Self-employed individual whose 2011 business income decreased 25% or more due to the economy (as compared to your 2010 business income).

How to Apply
If you are eligible, complete and mail Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship, by April 17, 2012. You will still receive an automated notice when the amount due on your return is assessed.

  • If your application is accepted, you will receive an extension, and you may disregard the payment due date on your automated notice. However, you must pay in full the tax, interest and any other penalties by October 15, 2012.

  • If your application is rejected, you will receive a notice. Consequently, you will generally have to pay a failure-to-pay penalty, which is ½ of 1 percent of your unpaid taxes for each month after the due date (cannot exceed 25 percent of your unpaid taxes).

Payment Options
The following payment options may be available if your application is rejected:

  • Installment Agreement
    You do not have to supply the IRS with a financial statement if your tax liability is $25,000 or less, and you need to supply only basic financial information if you owe between $25,001 and $50,000 and you agree to a Direct Debit Installment Agreement.  The IRS has increased the maximum term for streamlined installment agreements to 72 months (from 60 months).

  • Offer in Compromise (OIC)
    The IRS now has greater flexibility to grant an OIC to distressed taxpayers.

More Information

 

Page Last Reviewed or Updated: 27-Jan-2014