Many taxpayers find themselves unable to pay their taxes for a variety of reasons. When that is the case, understanding what your options are can mean the difference between eventually finding yourself unable to control the circumstances and being in the driver's seat, so to speak. Procrastination is a taxpayer's worst enemy and will result in owing significantly more than the original tax amount and being pulled along by the process; the longer they wait the worse it gets.
Since most taxpayers are unfamiliar with the IRS and the tax code they may be under the impression that the issue will go away, since the IRS is slow in process, or that they can simply beg off and the IRS will "let them off of the hook". The key thing to understand here is that the IRS operates under a tax code, which is a law, so they are legally obligated to assess and collect taxes...to enforce the tax law. For them not to do so would be the equivalent of the local police department not enforcing the law. As sobering as that fact may be there is a flip side. And that is this...those laws that obligate the IRS to enforce the tax law also restrict them from abusive practices when formal processes are followed by the taxpayer. That is why procrastination is a taxpayer's worst enemy and prompt action is the best way to address the issue even you can't pay.
Retaining professional representation is a must because the IRS is not concerned with saving the taxpayer money...according to their own mission statement they are concerned with making sure taxpayers "pay their fair share". To take advantage of certain options and benefits the taxpayer must not only know what they are but also know how to communicate with the IRS effectively and plead their case for a positive outcome. Again, professional representation is a must in accomplishing this. Below is a list of options if a taxpayer cannot pay their tax liability.
Option 1 - Ignore the problem and don't file a return. This is not a good option and is NEVER recommended for a variety of reasons. There are a number of penalties that the IRS assesses and among them is a "failure to file" penalty. Also generally there is a 10 year statute of limitations on the IRS ability to collect tax. However the clock doesn't start ticking until the tax has been assessed; the tax cannot be assessed until the return has been filed and reviewed by the IRS. This means that until a return is filed there is no statute of limitations binding the IRS on its collection activity. This is an example of one of those laws that limit abusive IRS practices as long as the taxpayer has followed the process. Also according to the IRS they may file a substitute return for you. Conclusion: ALWAYS file a return even if you can't pay.
Option 2 - Request an extension of time to file. This is not to be confused with extending the time to pay as the IRS expects the taxpayer to estimate and pay their liability by the original due date in April. The extension simply gives the taxpayer more time for information gathering in order to file as accurate a return as possible. Getting an extension will help avoid a failure to file penalty if the return is then filed by the extended due date. This will at least give the taxpayer some time to explore some options.
Option 3 - Borrow the funds or pay with a credit card. It may seem a little odd to suggest this but often the interest and penalties the IRS will charge are more than the interest the taxpayer will pay borrowing money or even using a credit card.
Option 4 - Request a temporary delay in collection. If the IRS determines that a taxpayer cannot pay any of their tax debt they may temporarily delay collection until their financial condition improves. This means that they will wait patiently and then collect once the taxpayer has the income or assets in order for them to do so; it is not a free pass to avoid ever paying at all.
Option 5 - Request an installment agreement. Installment agreements allow the payment of a tax debt in smaller, more manageable amounts.
Option 6 - Submit an Offer in Compromise. This option allows the IRS to settle the taxpayers debt for an agreed upon amount. The amount is determined by the taxpayer's assets and income. The documentation and process are complicated and should only be submitted through professional representation as only a small percentage of offers are accepted so representation will improve taxpayer's odds dramatically.
When dealing with tax debt it is crucial to remember that the IRS is acting under the law so they can do things that other creditors cannot such as a wage garnishment, bank levy, or tax lien. Also it is important to note that generally speaking penalties will be assessed and interest will continue to accrue on unpaid amounts until they are paid in full. And again professional representation is always best especially if a tax debt has turned into a tax problem.
Trace George is a Certified Public Accountant and is the Executive Vice President of Action Tax Relief. headquartered in Abilene, TX. Action Tax Relief provides services to individuals who are facing signficant tax problems with the IRS. We partner with consultants and CPAs in order to assist taxpayers through the process of dealing with the IRS to resolve their tax issues, including tax levies and liens.
(c) Copyright Trace George. All Rights Reserved Worldwide
0 comments:
Post a Comment