TAX Talk: IRS Fresh Start Programs
The Internal Revenue Service’s Fresh Start initiative makes it easier for individual and small business taxpayers to pay “back taxes and avoid tax liens.” Below are some of the ways one can participate in the programs:
In-Business Trust Fund Express Installment Agreements
Small businesses who currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA).
The criteria to qualify for an IBTF-Express IA are:
- You owe $25,000 or less at the time the agreement is established;
- The debt must be full paid within 24-months;
- You must enroll in a Direct Debit installment agreement (DDIA);
- You must be compliant with all filing and payment requirements.
Streamlined Installment Agreements
The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes. Under the Fresh Start initiative, the maximum dollar criteria for streamlined installment agreements are $50,000 and the maximum term normally consists of 72 months. The criteria to qualify for streamlined installment agreements with a balance due of $25,000 or less are:
- The debt must be full paid within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
- You must be compliant with all filing and payment requirements.
- Individuals who owe any type of tax (Form 1040, Trust Fund Recovery Penalty, etc.).
- Defunct businesses, including any type of entity and any type tax (Form 940, 941, 943, etc.).
- Operating businesses are limited to income tax liabilities only (Form 1120).
There are similar programs for streamlined installment agreements with a balance due of $25,001 to $50,000.
Offer in Compromise
An offer in compromise allows a taxpayer to settle the tax debt for less than the full amount they owe. It may be a legitimate option if they can't pay the full tax liability, or doing so creates a financial hardship. Some of the facts and circumstances are ability to pay, income, expenses; and asset equity.
Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. Make sure you are eligible. Before and offer in compromise is considered, the tax payer must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding.
IRS Notices and Bills, Penalties and Interest Charges
- April 15 is the deadline for most people to file their individual income tax return and pay any tax owed. Tax returns are checked for mathematical accuracy. If there is any money owed, you will be sent a bill. Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. Interest is compounded daily. If you file a return but don't pay all amounts shown as due on time, you'll generally have to pay a late payment penalty until the tax is paid in full or the 25 percent maximum penalty is reached.
- You must file your return and pay your tax by the due date to avoid interest and penalty charges.
- The penalties for filing and paying late may be abated if you have reasonable cause and the failure was not due to willful neglect.
There are various limitations and thresholds for many of the tax deductions. Please consult your CPA/Tax attorney/or tax consultant for proper guidance with the above subject matter.
DISCLAIMER: In accordance with IRS Circular 230, the above information is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.
Suresh Kumar, CPA, MBA is the Principal of Kumar Consulting, PA, a CPA & Consulting firm licensed in the states of FL, KS, & MO and can be reached at (813) 421-5068, e-mail [email protected] or visit www.kumarconsultingcpa.com