Owing money to the IRS can be really expensive. In real fact, many taxpayers try to dodge filing their tax returns in hopes of staying unnoticed. But the IRS takes taxes quite seriously, saying, “If you cannot afford the full amount of taxes you owe, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest.” If they must come to you for payment, they utilize somewhat cruel methods until there is a tax resolution. These can include wage garnishments, bank levies, and liens and so on.
Taxpayers are reasonably doubtful to have any transaction with the IRS until they can pay their bill. However, a preferable way to avoid collection efforts is to file returns on time yearly and organize a payment agreement with the IRS. Therefore, here are your options for tax resolution.
1. Personal Loan or Credit Card
The best way to resolve back-tax debt is to pay it off. If the taxpayer doesn’t have instant access to the funds, a personal loan or credit card may do the trick. But be sure to evaluate the options available to you. Credit cards may surely establish to be more expensive than the interest accrued on an IRS installment plan.
2. Payment Plan
The Taxpayer Advocate Service points out that most options for paying off a tax debt work best if you are proactive. By taking an action as soon as you can, you’ll help lessen the burden and keep the IRS from acting to collect the debt. In Addition, the IRS even gives a collection of tax resolution options for a range of potential consumer circumstances. These options are collectively known as the Fresh Start Initiative. It includes options such as the Offer in Compromise and installment agreements.
▪ Short-term Payment Plans
Taxpayers may gain from a short-term payment plan that grants an extension on their payment deadline with 120 days. Penalties and interest will continue to add up until the balance is paid in full. This option is a good option for a taxpayer who will be able to pay their total tax bill within a few months from the original tax deadline.
▪ Long-term Payment Plans
Taxpayers that require a longer period of time to pay off their balance need long-term payment plans. These are usually characterized by monthly payments for a set period of time, which leads to complete tax resolution.
Consumers are usually cautioned about applying for a payment agreement with the IRS. It is said that when you enter into an installment agreement, you must make a pledge to stay current on your future taxes.” The IRS will not put engaging in subsequent payment agreements into consideration until the year you’re currently paying on is fully resolved.
The IRS also gives the following key elements for maintaining on time payments on a long-term payment plan:
✔ Pay at least your minimum monthly payment at the appropriate time.
✔ File all necessary tax returns at the appropriate time and pay all taxes in-full and also on time (speak to the IRS to change your existing agreement if you can’t.)
✔ Expect future refunds to be applied to your tax debt until the tax resolution is finally complete.
✔ Make all arranged payments, even when the IRS applies a refund to your account balance.
✔ When paying by check, include the following information: name, address, SSN, daytime phone number, tax year and return type on your payment.
✔ Notify the IRS of your new address if you move.
✔ Verify your payment information, date and amount by reviewing your recent statement or the confirmation letter you received.
3. Offer in Compromise
The Offer in Compromise isn’t as difficult as many people think it is. It’s reserved for a limited number of cases in special circumstances. The IRS explains that it generally approves an offer in compromise when the amount offered represents that most that we can expect to collect within a reasonable period of time.”
The taxpayer needs to add the application fee and down payment with the offer. Whether the IRS accepts or rejects the offer, they will keep the payments included with the offer. The application fee is non-refundable, and they will relate the down payment to your back-tax balance. If tax resolution isn’t accomplished through the offer, it can be an expensive disappointment. If the IRS accepts the offer, it’s a perfect way to transition back into compliance with the IRS.
Constructing an offer can be a difficult thing to do, as well as confusing. Many professionals recommend hiring a reputable tax professional to do this on your behalf.
The IRS evaluates the offer in terms of doubt as to liability, doubt as to collectability, and effective tax administration. These boil down to doubt about owing the tax debt, doubt the ability to collect the debt, and also economic hardship, in that order. The IRS explains even more about being unable to collect the debt saying that Doubt as to collectability exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.”
▪ Payment Options for the Offer in Compromise
The IRS provides three payment options for the Offer in Compromise method of tax resolution. First, the shortest payment period is the lump sum option. The taxpayer has a chance to pay the amount in the offer in five payments or less. The first payment should be included with the offer and equal at least 20 percent of the offer. The short-term periodic payment option can extend to 24 payments. The deferred periodic payment extends until the statute of limitations for collections expires.
4. Uncollectable Status
Finally, one may scrutinize all options available for tax resolution and draw a conclusion that none of them can apply to him or her. Consumers that are not able to utilize these options to pay their back-tax debt may request a currently-not-collectible (CNC) status. The IRS must evaluate the taxpayer’s case, including income, assets and expenses, to determine that this status is suitable.
If so, this status may stay in place for the short-term or long-term. Above all, it’s fashioned to give the taxpayer an opportunity to overcome their financial hardship. In turn, the IRS expects the taxpayer to arrange a way to pay off the debt in the future as soon as they can.