IRS Simplifies Complex Processes for Tax Debt Resolution

Last updated on July 15, 2022

The IRS has introduced flexibility in the tax debt resolution process. The process of resolving IRS debt through an Installment Agreement or an Offer in Compromise is now much easier but the eligibility factors have remained unchanged.

This is not the first time the IRS has made efforts to simplify the process. The IRS offered Fresh Start initiatives in 2011 to ease the resolution process. Even though the IRS has not offered penalty relief in 2013, for 2011 taxes it waived penalty for failure-to-pay. About.com shares the details:

“This late payment penalty is half of one percent for each month or part of a month that a tax is not yet paid in full. To qualify for this waiver, taxpayers:

• Must be unemployed for at least thirty consecutive days in 2011 or from January 1 to April 17, 2012; or
• Have suffered a 25% or greater decrease in self-employment income; and
• Have income not more than $100,000 for unmarried individuals or $200,000 for married couples; and
• File their 2011 tax return either by the April 17th deadline, or request an extension and subsequently file by the October 15th deadline; and
• The balance owning on their 2011 tax return must be not more than $50,000; and
• The entire balance must be paid in full by the October 15th deadline.

Taxpayers meeting these criteria can request that the failure-to-pay penalty be removed by filling out brand new Form 1127A (pdf).

It’s not very often that the IRS grants penalty relief. For taxpayers who are able to pay their 2011 taxes in full by October, this can help make that payment process more affordable. The IRS won’t waive interest, however, on the unpaid balance. Currently, the IRS charges interest at a rate of 3% annually.”

Usually, the IRS introduces offers for a single tax year. In 2013, the IRS introduced flexibility for an Installment Agreement by increasing the maximum dollar for Streamlined Installment Agreements to $50,000 from the previous $25,000. Now, in most cases taxpayers do not need to provide a financial statement to the IRS.

The IRS has also removed or simplified many processes especially for determining the financial strength of taxpayers paying tax debt under the Offer in Compromise program. The threshold of the federal tax lien filing has also been increased from $5,000 to $10,000.

Those who are getting their tax debt resolved this year may consider these new initiatives by the IRS to pay their back taxes more comfortably.