If you know people who might not file their returns because they don’t have the money to pay the tax, the IRS may offer them some assistance.

The IRS has expanded its so-called Fresh Start initiative to help financially distressed taxpayers by providing late-payment penalty relief to qualifying individuals and making streamlined installment agreements available to more taxpayers.

Penalty relief – The IRS is making available to certain wage earners and self-employed individuals a six-month grace period on failure-to-pay penalties. 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 applies for 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 filing deadline
• Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy

To qualify, income must not exceed $100,000 for single individuals or heads of household, or $200,000 for joint filers. The penalty relief is not available to those whose calendar year 2011 balance due exceeds $50,000.

Those qualifying for relief will avoid the penalty until Oct. 15, 2012. However, the IRS will charge interest – currently 3 percent on an annual basis – on the unpaid taxes. Everyone should file a return by April 17 or file for an extension because the relief does not extend to the failure-to-file penalty.

Streamlined installment agreements – The IRS has raised the threshold for using an installment agreement without having to supply a financial statement from $25,000 to $50,000 of back taxes due. It has also extended the maximum term for streamlined installment agreements to 72 months from the previous 60-month maximum.

Read more in Information Release 2012-31.