Category Archives: Back Taxes and Tax Debts

IRS Eases Up on Financially Struggling Taxpayers

In a recent information release (IR 2012-31), Uncle Sam offers to take it easy on folks who are struggling in this economy.

IRS is now offering late payment penalty relief, and the opportunity to allow more taxpayers to qualify for installment payment agreements.

Certain wage earners and self-employed individuals will now qualify for a six-month grace period on failure to pay penalties.  A request for an extension of time to pay will result in relief from penalties for tax year 2011 as long as the tax, interest and any other penalties are fully paid by October 15, 2012. (More on Filing and Paying Taxes Late.)

To qualify, wage earners must have been unemployed for at least 30 consecutive days during 2011 or 2012 up to the initial filing deadline of April 17, 2012.  Self-employed individuals who have experienced a 25% or greater reduction in business income in 2011 will also qualify.

Qualifying taxpayers’ income must not exceed $100,000 in the case of single or head of household filers and $200,000 for joint filers.  Also, penalty relief won’t be available to taxpayers whose calendar year 2011 tax balance due exceeds $50,000.

Check out Form 1127-A, which must be filed in order to seek relief in these circumstances.

More from Nolo: Back Taxes & Tax Debt.

IRS Tentacles Extend to Electronic Records

If you think IRS’ longstanding audit techniques have been intrusive, get ready for the era of IRS Chief Counsel Advice 201146017 (link goes to PDF file).

The Counsel comments on a number of issues related to IRS’ ability to summon a taxpayer’s original electronic data files or backup files to obtain information including who, when, and how the information was created.

Recall that IRS has always been empowered to examine books, papers, records and other data for purposes of ascertaining the correctness of any return, making a return if none has been made, determining the tax liability of any person, and collecting that liability.

In this electronic age, however, it seems IRS existing authority isn’t perceived as broad enough.  The CCA guidance stands for the proposition that the phrase “books, papers, records, and other data” expressed in IRC Section 7602 was more than broad enough to encompass the compelled production of the electronic documents themselves.  And a taxpayer’s offer to provide paper copies may be construed as insufficient from IRS’ point of view.

Further, the CCA believes it can similarly summon such data from a third party, such as the taxpayer’s accountant.

Big Brother never stops watching.

IRS Eases ‘Innocent Spouse Relief’ Rules

The IRS announced this week that it is scaling back its restrictions on filing for innocent spouse relief, making it easier for taxpayers to stay off the hook for tax debts and other tax-related shenanigans committed by their spouses.

When you file a joint income tax return, the law makes both you and your spouse responsible for any tax debts and other liability. Innocent spouse relief is meant to help taxpayers who didn’t know — and had no reason to know — that their spouse was underpaying taxes or failing to pay taxes altogether. Until this week, people trying to qualify for equitable relief as an innocent spouse had to file their request within two years of the time that the IRS’s collection efforts first began.

So, what was the problem with the old two-year limit? It wasn’t unusual for a truly innocent spouse to be unaware of their not-so-innocent spouse’s tax problems (including the IRS’s collection efforts) for over two years. And under the old rules, if you discovered your spouse’s wrongdoing too late (after that two-year window had closed), the IRS said your innocent spouse claim was SOL.

Get details on this week’s IRS announcement here, and for everything you ever wanted to know about innocent spouse claims, check out IRS Publication 971: Innocent Spouse Relief.