Do not let tax liability force you to pay more than your fair share of taxes. The IRS has been providing special reliefs to people who have not been able to meet their tax obligations for the last few years.
The tax revenue authority body through its “Fresh Start” initiative is taking target at small business owners and the unemployed to meet revenue collection targets set previously.
According to Doug Shulman, IRS Commissioner, the agency has an obligation to work with struggling taxpayers in order to find a workable solution for both parties.
Every taxpayer should know that failing to file returns or to pay taxes on time will attract penalties which will increase their tax liability.
» Failure to file on time will result in a penalty of five percent per month of the unpaid taxes until the amount is fully settled.
» Failure to pay taxes will lead to a penalty of half of 1 percent of the unpaid taxes every month.
The good news is that the agency is giving a half-year grace period to some self-employed people and eligible unemployed people. During this period, these groups of taxpayers will not incur penalties for late payment or failure to file returns. However, taxpayers who fall into these two categories will have to fill out the IRS Form 4868 to ask for an extension.
Under the Fresh Start initiative, eligible taxpayers will have up to 15th October to pay their taxes. Self-employed individuals who have seen their income drop by more than 25 percent due to the economic crisis in 2011 can also qualify for this deadline extension.
Innocent Spouse Relief has always been available as a way for taxpayers who file joint tax returns and who were not aware, nor had any kind of reason to be aware, that her or his spouse had underpaid or understated their liability for income taxes. It was designed to offer the innocent taxpayer some protection from the faults of their partners and spouses and details of how it works were to be found in Publication 971 which was entitled Innocent Spouse Relief.
The regulations detailed in Publication 971 state that innocent spouse requests that are seeking relief from liability need to be filed within 2 years from the time that the IRS begins action for collection against the spouse. The point of this time limit was always that it was established to encourage early and swift resolution while there was still evidence remaining. However it has been announced that the IRS now intends to issue new regulations stating that they will be removing this two year time limit. In doing so they have stated that the reason for its removal is that they wish to extend the period in order to assist more innocent spouses in their relief requests.
From now on the IRS will not be applying that 2 year limit to any equitable relief cases and any taxpayers who have previously been denied relief requests purely on the basis of the two year limit are now eligible to reapply if they wish to. To do so they need to fill out IRS form 8857. In addition, those taxpayers who have ongoing cases currently held in suspension are now going to be afforded the benefits of the new rules and need not restart their application. Similarly they will not be applying the two year restriction to any cases that are pending litigation that involve equitable relief and if litigation has become final, they will suspend collection under many circumstances.
All changes are effective immediately and can be found in Notice 2011-70.
Alex is a freelance journalist and financial blogger. He loves to write about football and jazz but spends most of his days writing about mortgages, credit cards and tax reduction.