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Way Busy Here, But This IRS News is to Good to Pass Up – Unemployed? Can’t Pay Your Tax?

Tax

WASHINGTON — The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet,” said IRS Commissioner Doug Shulman. ”This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.”

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 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.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly encourages taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, also with a 25 percent cap.

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.

The IRS announced today that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions.
These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

“Our goal is to help people meet their obligations and get back on their feet financially,” Shulman said.

Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of Fresh Start.

Offers in Compromise

Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Details on IRS Collection and Other Information

A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS website, www.irs.gov.

The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations:

IRS YouTube Video: Fresh Start: English

IRS Podcast: Fresh Start: English

IRS Presents:Nine Things You Should Know about Penalties

The tax filing deadline is approaching. If you don’t file your return and pay your tax by the due date you may have to pay a penalty. Here are nine things the IRS wants you to know about the two different penalties you may face if you do not pay or file on time.

  1. If you do not file by the deadline, you might face a failure-to-file penalty.
  2. If you do not pay by the due date, you could face a failure-to-pay penalty.
  3. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
  4. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
  5. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
  6. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
  7. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
  8. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
  9. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

 
Link:  Avoiding Penalties and the Tax Gap

Tax Preparers – Are You Getting The Proper Written Consent From Your Clients?

[Stacie says: This information is published by the IRS on their website Aids to Preparing §721 Consent Forms. If you are not already aware of these rules, you better get on it!]

IntroductionTreasury Regulation §301.7216-3(a) states, “Unless section 7216 or §301.7216-2 specifically authorizes the disclosure or use of tax return information, a tax return preparer may not disclose or use a taxpayer’s tax return information prior to obtaining a written consent from the taxpayer…” [emphasis added].

The regulations go on to specify requirements for the consent forms. Revenue Procedure 2008-35 supplements the regulations and prescribes mandatory language required in consent forms depending on the situations under which consents are requested from taxpayers by tax return preparers. The Revenue Procedure also specifies format requirements for the consent forms produced on paper and electronically. The following aids outline seven section 7216 consent situations and the different consent elements relevant to each situation.

Format RequirementsPaper Consent Forms – All paper consent forms must be on 8½ x 11 inch or larger paper and printed in 12 point type (i.e., no more than 12 characters per inch).

Electronic Consent Forms – All consent form screens must pertain solely to the disclosure or use of tax return information authorized by the consent, except for computer navigation tools; text must be at least the same size as, or larger than, the normal or standard body text used by the website or software package for direction, communications or instructions; and there must be sufficient contrast between the text and background colors.

Electronic Signature RequirementsRefer to Revenue Procedure 2008-35, section 5.

Required Information and Mandatory LanguageThere are seven situations–six for disclosure and one for use of tax return information–described in the regulations and Revenue Procedure that call for different consent form information requirements and mandatory language. The following aids collect the required information fields and mandatory language for each of the seven situations that form the bases for the applicable consent form. Refer to Treasury Regulations §301.7216-3 and Revenue Procedure 2008-35, section 6 for more information and examples of acceptable consent forms.

Disclosure Situation 1

(Consent is sought for disclosure of tax return information in the context of tax return preparation or performance of auxiliary services (for example, where a tax return preparer seeks substantive advice from another tax return preparer which will affect the tax liability reported by a taxpayer); and Tax return information will not be disclosed outside the United States or any territory or possession of the United States)
____________________________________________________________
Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return and, in certain limited circumstances, for purposes involving tax return preparation. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.You are not required to complete this form. Because our ability to disclose your tax return information to another tax return preparer affects the service that we provide to you and its cost, we may decline to provide you with service or change the terms of service that we provide to you if you do not sign this form. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.

Duration of consent (optional):
I, [insert name of taxpayer] authorize [insert name of tax return preparer] to disclose [specify tax return information to be disclosed] to [identify the recipient of the tax return information] for the purpose of [specify the intent of the disclosure].Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.
If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at complaints@tigta.treas.gov.

Taxpayer Signature:
Date:

_____________________________________________________________

Disclosure Situation 2
(Consent is sought for disclosure of tax return information in the context of tax return preparation or performance of auxiliary services; and Tax return information will be disclosed outside the United States or any territory or possession of the United States; Disclosure does not include the taxpayer’s social security number, and Disclosure does not include a document where the social security number is not fully masked or otherwise redacted )

__________________________________________________________
Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return and, in certain limited circumstances, for purposes involving tax return preparation. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.You are not required to complete this form. Because our ability to disclose your tax return information to another tax return preparer affects the service that we provide to you and its cost, we may decline to provide you with service or change the terms of service that we provide to you if you do not sign this form. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.

This consent to disclose may result in your tax return information being disclosed to a tax return preparer located outside the United States.
I, [INSERT NAME OF TAXPAYER] authorize [INSERT NAME OF TAX RETURN PREPARER] to disclose [SPECIFY TAX RETURN INFORMATION TO BE DISCLOSED] to [IDENTIFY THE RECIPIENT OF THE TAX RETURN INFORMATION] for the purpose of [SPECIFY THE INTENT OF THE DISCLOSURE].Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.
If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at complaints@tigta.treas.gov.
Taxpayer Signature:
Date:
____________________________________________________________

Disclosure Situation 3
(Consent is sought for disclosure of tax return information in the context of tax return preparation or performance of auxiliary services; and Tax return information will be disclosed outside the United States or any territory or possession of the United States Disclosure includes the taxpayer’s social security number, or
Disclosure includes a document where the social security number is not fully masked or otherwise redacted Note that in order to disclose a taxpayer’s social security number to a tax return preparer located outside of the United States, both the tax return preparer located within the United States and the tax return preparer located outside of the United States must maintain an adequate data protection safeguard at the time the taxpayer’s consent is obtained and when making the disclosure. Rev. Proc. 2008-35 § 4.07.
An exception to the consent requirement exists where a tax return preparer located within the United States initially receives a social security number from a tax return preparer located outside of the United States and the preparer within the United States retransmits the social security number to the preparer that initially provided it. Treas. Reg. § 301.7216-3(b)(4). )
________________________________________________________________________________

Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return and, in certain limited circumstances, for purposes involving tax return preparation. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.You are not required to complete this form. Because our ability to disclose your tax return information to another tax return preparer affects the service that we provide to you and its cost, we may decline to provide you with service or change the terms of service that we provide to you if you do not sign this form. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.

Duration of Consent (optional):
This consent to disclose may result in your tax return information being disclosed to a tax return preparer located outside the United States, including your personally identifiable information such as your Social Security Number (“SSN”). Both the tax return preparer in the United States that will disclose your SSN and the tax return preparer located outside the United States which will receive your SSN maintain an adequate data protection safeguard (as required by the regulations under 26 U.S.C. Section 7216) to protect privacy and prevent unauthorized access of tax return information. If you consent to the disclosure of your tax return information, Federal agencies may not be able to enforce U.S. laws that protect the privacy of your tax return information against a tax return preparer located outside of the U.S. to which the information is disclosed.

I, [INSERT NAME OF TAXPAYER] authorize [INSERT NAME OF TAX RETURN PREPARER] to disclose [SPECIFY TAX RETURN INFORMATION TO BE DISCLOSED] to [IDENTIFY THE RECIPIENT OF THE TAX RETURN INFORMATION] for the purpose of [SPECIFY THE INTENT OF THE DISCLOSURE].Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.
If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at

complaints@tigta.treas.gov.

Taxpayer Signature:
Date:
______________________________________________________________
Disclosure Situation 4
(Consent is sought for disclosure of tax return information in the context other than tax return preparation or performance of auxiliary services; and
Tax return information will not be disclosed outside the United States or any territory or possession of the United States)
_____________________________________________________________
Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.You are not required to complete this form. If we obtain your signature on this form by conditioning our services on your consent, your consent will not be valid. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.
Duration of Consent (optional):

I, [INSERT NAME OF TAXPAYER] authorize [INSERT NAME OF TAX RETURN PREPARER] to disclose [SPECIFY TAX RETURN INFORMATION TO BE DISCLOSED] to [IDENTIFY THE RECIPIENT OF THE TAX RETURN INFORMATION] for the purpose of [SPECIFY THE INTENT OF THE DISCLOSURE].Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.

If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at
complaints@tigta.treas.gov.
Taxpayer Signature:
Date:
_______________________________________________________________
Disclosure Situation 5
(Consent is sought for disclosure of tax return information in the context other than tax return preparation or performance of auxiliary services; and
Tax return information will be disclosed outside the United States or any Territory or possession of the United States
Disclosure does not include the taxpayer’s social security number, and
Disclosure does not include a document where the social security number is not fully masked or otherwise redacted )

_______________________________________________________________________________

Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.You are not required to complete this form. If we obtain your signature on this form by conditioning our services on your consent, your consent will not be valid. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.


Duration of Consent (optional):

This consent to disclose may result in your tax return information being disclosed to a tax return preparer located outside the United States.
I, [INSERT NAME OF TAXPAYER] authorize [INSERT NAME OF TAX RETURN PREPARER] to disclose [SPECIFY TAX RETURN INFORMATION TO BE DISCLOSED] to [IDENTIFY THE RECIPIENT OF THE TAX RETURN INFORMATION] for the purpose of [SPECIFY THE INTENT OF THE DISCLOSURE].`Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.
If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at

complaints@tigta.treas.gov.

Taxpayer Signature:
Date:
_____________________________________________________________
Disclosure Situation 6
(Consent is sought for disclosure of tax return information in the context other than tax return preparation or performance of auxiliary services; and
Tax return information will be disclosed outside the United States or any territory or possession of the United States
Disclosure includes the taxpayer’s social security number, orDisclosure includes a document where the social security number is not fully masked or otherwise redacted
Note that in order to disclose a taxpayer’s social security number to a tax return preparer located outside of the United States, both the tax return preparer located within the United States and the tax return preparer located outside of the United States must maintain an adequate data protection safeguard at the time the taxpayer’s consent is obtained and when making the disclosure. Rev. Proc. 2008-35 § 4.07 )
____________________________________________________________________________
Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.You are not required to complete this form. If we obtain your signature on this form by conditioning our services on your consent, your consent will not be valid. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.

Duration of consent (optional):

This consent to disclose may result in your tax return information being disclosed to a tax return preparer located outside the United States, including your personally identifiable information such as your Social Security Number (“SSN”). Both the tax return preparer in the United States that will disclose your SSN and the tax return preparer located outside the United States which will receive your SSN maintain an adequate data protection safeguard (as required by the regulations under 26 U.S.C. Section 7216) to protect privacy and prevent unauthorized access of tax return information. If you consent to the disclosure of your tax return information, Federal agencies may not be able to enforce U.S. laws that protect the privacy of your tax return information against a tax return preparer located outside of the U.S. to which the information is disclosed.
I, [INSERT NAME OF TAXPAYER] authorize [INSERT NAME OF TAX RETURN PREPARER] to disclose [SPECIFY TAX RETURN INFORMATION TO BE DISCLOSED] to [IDENTIFY THE RECIPIENT OF THE TAX RETURN INFORMATION] for the purpose of [SPECIFY THE INTENT OF THE DISCLOSURE].Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.
If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at

complaints@tigta.treas.gov.

Taxpayer Signature:

Date:
_______________________________________________________________
Disclosure Situation 7
Use – All Situations
(Consent is sought for use of tax return information under any circumstance)
_______________________________________________________________
Federal law requires this consent form be provided to you. Unless authorized by law, we cannot use, without your consent, your tax return information for purposes other than the preparation and filing of your tax return.You are not required to complete this form. If we obtain your signature on this form by conditioning our services on your consent, your consent will not be valid. Your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.

Duration of Consent (optional):

I, [INSERT NAME OF TAXPAYER] authorize [INSERT NAME OF TAX RETURN PREPARER] to use [SPECIFY TAX RETURN INFORMATION TO BE USED] for the purpose of [DESCRIBE AUTHORIZED USE].Note: If there are multiple reasons for requesting consent to use tax return information they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.

If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at complaints@tigta.treas.gov.

Taxpayer Signature:
Date:

IRS Page Last Reviewed or Updated: December 18, 2008

Do You Suffer From Late Filing Syndrome – Busy Season Rerun

By Stacie Clifford Kitts, CPA

I just love this story – so I am posting again as part of my busy season reruns.

Can’t seem to file your tax returns on time? Do you have an aversion to paperwork?

Well – you’re not alone. You could be suffering from a controversial syndrome which makes it difficult for you to face the ordeal of completing your tax return.

Still not sure? Take a look at the additional following criteria. Does this sound like you?

Are you sophisticated, both financially and with respect to taxes?
Is the ultimate discovery of your failure to file obvious to you?
Are the potential penalties, financial and professional, clear to you?
Do you acknowledge that penalties will likely occur?
Is there no clear benefit to not filing because there is no significant tax due, or you have the money to cover the tax liability, or you can easily barrow the money to cover the liability?
Do you have a history of filing in the past?
Do you file extensions and pay estimated tax payments?
Are you anxious and obsessed about not filing?
Do you exhibit self destructive behavior by waiting to file your returns until the IRS is upon you?


If this sounds like you, you may be exhibiting symptoms of “Late-Filing Syndrome.”

According to tax lawyer Richard S. Kestenbaum, Late-Filing Syndrome is the reason that five years of tax returns amounting to approximately $300,000 of tax liability, penalties, and interest were not filed by New York Governor chief of staff Charles O’Byrne.

The New York Times reported that “late-filing syndrome, sometimes known as non-filing syndrome or failure-to-file syndrome, in not listed in the Diagnostic and Statistical Manual of Mental Disorders.” However, according to the Times, “legal experts said that it is not uncommon for tax evaders to claim they suffer from such a syndrome, because it can shield them from criminal penalties.” This is true because the IRS must prove that a tax payer willfully intended to evade paying income taxes.

I must admit, an aversion to filling out paperwork is something I certainly can relate to – especially around April 15.

Absent further evidence, this syndrome appears to be a creative and possibly effective attempt by attorneys to protect their clients from criminal prosecution.

Seven Things About Penalties

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.
The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

IRS to Help Financially Distressed Taxpayers

Published by the IRS

If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help. As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:

Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.

Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties.

However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.

Prevention of Offer in Compromise Defaults – Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.

Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.

Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

If you are behind on tax payments there could be additional help available if you are facing an unusual hardship situation. For assistance with your back taxes contact the phone numbers listed on your IRS correspondence.

More information is available on the IRS web site at IRS.gov.

Do You Suffer From Late-Filing Syndrome?

By Stacie Clifford Kitts, CPA

Can’t seem to file your tax returns on time? Do you have an aversion to paperwork?

Well – you’re not alone. You could be suffering from a controversial syndrome which makes it difficult for you to face the ordeal of completing your tax return.

Still not sure? Take a look at the additional following criteria. Does this sound like you?

Are you sophisticated, both financially and with respect to taxes?
Is the ultimate discovery of your failure to file obvious to you?
Are the potential penalties, financial and professional, clear to you?
Do you acknowledge that penalties will likely occur?
Is there no clear benefit to not filing because there is no significant tax due, or you have the money to cover the tax liability, or you can easily barrow the money to cover the liability?
Do you have a history of filing in the past?
Do you file extensions and pay estimated tax payments?
Are you anxious and obsessed about not filing?
Do you exhibit self destructive behavior by waiting to file your returns until the IRS is upon you?


If this sounds like you, you may be exhibiting symptoms of “Late-Filing Syndrome.”

According to tax lawyer Richard S. Kestenbaum, Late-Filing Syndrome is the reason that five years of tax returns amounting to approximately $300,000 of tax liability, penalties, and interest were not filed by New York Governor chief of staff Charles O’Byrne.

The New York Times reported that “late-filing syndrome, sometimes known as non-filing syndrome or failure-to-file syndrome, in not listed in the Diagnostic and Statistical Manual of Mental Disorders.” However, according to the Times, “legal experts said that it is not uncommon for tax evaders to claim they suffer from such a syndrome, because it can shield them from criminal penalties.” This is true because the IRS must prove that a tax payer willfully intended to evade paying income taxes.

I must admit, an aversion to filling out paperwork is something I certainly can relate to – especially around April 15.

Absent further evidence, this syndrome appears to be a creative and possibly effective attempt by attorneys to protect their clients from criminal prosecution.

Preparer Penalty News

Practitioners who prepare Earned Income Tax Credit (EITC) claims must meet four due diligence requirements. For example, they must ask the required questions on Form 8867, Paid Preparer’s Earned Income Credit Checklist, and probe further when information seems incorrect, inconsistent or incomplete.

Failure to meet the due diligence requirements can result in a $100 penalty for each failure.

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Issue Number: IR-2007-213

Inside This Issue

Treasury, IRS Implement Enhanced Standards of Conduct for Tax Return Preparers; Plan Overhaul of Tax Return Preparer Regulatory Regime

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued Notice 2008-13 that implements a May 2007 law that expanded the tax return preparer penalty and heightened the standards of conduct that must be met by tax return preparers in order to avoid that penalty.

Notice 2008-13 also solicits input from the tax return preparer community on a planned overhaul of the tax return preparer penalty regime anticipated to be completed by the end of 2008.

“The plan to take a fresh look at the preparer penalty regulations will be a top priority for us in 2008,” said IRS Chief Counsel Don Korb. “We look forward to receiving comments from all interested parties on their recommendations for the final regulations. Our goal is to complete our work on the overhaul of these rules by the end of 2008,” he said.

For undisclosed positions on a tax return, the new law replaced the realistic possibility standard with a requirement that there be a reasonable belief that the tax treatment of the position would more likely than not be sustained on its merits. In cases in which the taxpayer discloses the position on the tax return, the notice implements the new law that states there must be a reasonable basis for the tax treatment of the position taken on the tax return.

The notice provides interim rules to implement and interpret these heightened standards. The interim rules will be in effect until the overhaul of the current return preparer penalty regulations is complete. The interim rules emphasize the importance to preparers of understanding the legal basis for positions taken on tax returns, the requirement for taxpayers to disclose certain positions, and the need for preparers to advise taxpayers on the various penalties that can apply when a position is taken on a return that may not be supported by existing law.

Under the notice, preparers generally can continue to rely on taxpayer representations in preparing returns and can also generally rely on representations of third parties, unless the preparer has reason to know they are wrong.

The new law also expanded the return preparer penalty to cover all tax return preparers, not just income tax return preparers. Under the notice, preparers of many information returns, however, will not be subject to the new penalty provision unless they willfully understate tax or act in reckless or intentional disregard of the law. The notice also includes examples illustrating how the new standards would apply.

In addition to Notice 2008-13, additional guidance has been provided in Notice 2008-12 with respect to the implementation of the tax return preparer signature requirement, and in Notice 2008-11, which clarifies the transition relief provided in Notice 2007-54, issued earlier this year.

Notice 2009-05 provides guidance regarding implementation of the tax return preparer penalty under section 6694(a) of the Internal Revenue Code, as amended by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Div. C. of Pub. L. No. 110-343, 122 Stat. 3765 (October 3, 2008) (the 2008 Act).

TD 9436 contains final regulations implementing amendments to the tax return preparer penalties under sections 6694 and 6695 of the Internal Revenue Code (Code) and related provisions under sections 6060, 6107, 6109, 6696, and 7701(a)(36) reflecting amendments to the Code made by section 8246 of the Small Business and Work Opportunity Tax Act of 2007 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. The final regulations affect tax return preparers and provide guidance regarding the amended provisions.

REG-160872-04 contains proposed regulations under section 6707 of the Internal Revenue Code (Code), which provide the rules relating to the assessment of penalties against material advisors who fail to timely file a true and complete return required under section 6111(a). The regulations implement the amendments to section 6707 by the American Jobs Creation Act and promote material advisors’ compliance with the regulations under section 6111. These regulations affect material advisors responsible for disclosing reportable transactions under section 6111.

Notice 2009-05 provides guidance regarding implementation of the tax return prepare penalty under section 6694(a). The Service is also requesting comments on the interim guidelines in this notice.

Revenue Procedure 2009-11 describes the returns and claims for refund that are subject to the penalties for understatement of a taxpayer’s liability by a tax return preparer under section 6694 and for the tax return preparer’s failure to sign the return or claim for refund under section 6694(b). Please see related document, TD 9436.
Notice 2009-5 and Revenue Procedure 2009-11 will be published in Internal Revenue Bulletin 2009-3 on January 21, 2009.

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