At times, you may wonder if it is vital to file your return if you cannot pay the tax bill. This is extremely important because you will certainly be levied with IRS penalties and interest, as a defaulter. The failure to pay the penalty and interest rate for underpayment of taxes differ from country to country, but you should know your options in case you have to pay them.
Audit Reconsideration
When a tax credit is revered, or the taxpayer demands a reevaluation of the results of a prior audit, an audit reconsideration process is taken into action. When the taxpayer opposes the previous determination, he/she has to provide information on the audited issues which were not assessed before. The IRS agrees to take up audit reconsideration mostly when you have missed your audit appointment, the audit notice didn’t reach you, there was an error in computing your taxes, or there is some new information to add.
Action required
Gather all the required documents which were not a part of your initial audit. Fill up the IRS Form 4549 and attach the copies of your documents and send in your request.
Pros and cons
The audit reconsideration has nothing to do with your financial statements and your ability to pay. However, it only works if you have already been audited and have new information to add.
Offer in Compromise
The IRS has provisions for people who are suffering from any serious case of inability to pay. Based on the IRS financial standards, if you can prove that paying the tax will cost you extra hardships, you may be allowed to offer in compromise.
Fees or cost
There is neither any cost on the application nor any imposition of penalties. The interest is, however, charged at a federal rate with an additional 3% payment.
Action required
With a statement of your assets and liabilities, fill up the IRS Form 1127, named Application for Extension of Time for Payment of Tax Due to Undue Hardship.
Installment Agreement
The taxpayers can set up varying IRS payment plans known as installment agreements. They will analyze your situation, scrutinize how much you can pay back at what time, and give you a proposal accordingly. However, if you can pay back your dues within 120 days, you should opt for setting up a short-term extension plea.
Fees or cost
The fees of the installment agreement are $149 if you make an online payment. The cost of application for low-income taxpayers is $43, which you can avail after submitting Form 13844.
Action required
You need to fill up the Form 9465 or sign an online payment agreement. For installment agreements of $50,000 and less, no financial statement is required.
Pros and Cons
The IRS can declare your agreement void if you do not make the payments on time. Also, the penalty on your unpaid balance is reduced to 0.25% per month if you opt for an installment agreement. Interest is also levied at a federal rate, along with an additional charge of 3%.
Are you interesting in learn more about what to do when you owe money to the IRS? Speak to our CPA Lawyers today!