With the economic climate what it is today, many taxpayers owe back taxes that they are unable to pay. A taxpayer faced with this situation should be well aware that the worst response is to ignore the problem and hope that it will go away. The consequences of disregarding tax deadlines can be severe and, with more and more resources being allocated to the IRS for enforcement and modernization, it is going to be increasingly difficult for taxpayers who have not filed or already have an outstanding tax debt to remain under the radar. The best course of action is always to meet tax filing deadlines and then make maximum use of the use of the programs offered by the IRS to help when the funds to pay the full amount of the tax bill are unavailable. In fact, a series of new policies and programs to help taxpayers who cannot pay their taxes have recently been initiated. However, these options are numerous and can be complex and confusing so a taxpayer may be best served by contacting a tax settlement professional to help determine the best course of action.
The Consequences of Not Paying Your Tax Bill
When no tax return has been filed, the IRS has the authority to use information from other sources in order create a substitute tax return. This document, called a Substitute for Return, is an educated guess as to the dollar amount of taxes owed and is used to begin collection efforts. Since it does not include exemptions and deductions to which the taxpayer may be entitled, the estimated tax liability shown on the substitute return is usually greater than what is actually owed.A taxpayer who fails to file can be assessed a failure-to file penalty of five percent of the amount of tax due for each month that the return is overdue up to a maximum of 25 per cent of the amount owed. In addition, although it is seldom invoked, a taxpayer who fails to file can be charged with a misdemeanor which carries a maximum fine of $25,000 and up to a one year prison term.
When a return is not filed and taxes are owed, the IRS will begin the collection process. While this process will usually begin with passive techniques such as the issuing of an IRS letter or an IRS Notice, the methods become more aggressive as the collection period progresses. Eventually, the IRS may file a tax lien, issue a tax levy or initiate a wage garnishment. Any of these actions can have a drastic effect on a taxpayer's credit rating and financial well being.
The Solution When You Cannot Pay What You Owe
Request a short term administrative extension if the funds to pay the tax bill will be available within 120 days. Interest and a failure-to pay penalty of one-half of 1% per month with be charged but this much less than the failure-to file penalty and no collection action will be initiated by the IRS.Borrow the funds to pay the tax debt by putting the balance on a credit card, withdrawing from a retirement account or taking out a bank loan. When considering this option, the interest and penalties associated with borrowing should be weighed against those that will be assessed by the IRS on the outstanding tax balance.
Set up and IRS Installment Agreement which will allow the tax debt to be paid off in monthly installments. Although there is a small fee for setting this up, approval is almost automatic if the amount of the tax debt is less than $10,000 and the taxpayer is in good standing with the IRS. An Installment Agreement allows the taxpayer to set the amount of the monthly installment payment as long as long as full repayment of the tax debt is accomplished within five years.
Apply for a Partial Payment Installment Agreement or an Offer in Compromise. With both of these options, the IRS agrees to accept the settlement of an outstanding tax liability for less than the full amount owed. The acceptance criteria for both plans are very specific and both require thorough documentation of a taxpayer's assets and liabilities. In general, these settlement options are only granted when the IRS determines that it is very unlikely that the taxpayer will be able to pay the full amount of the tax debt at any time in the near future
If you have a tax debt that you are unable to pay, we can help you resolve it. For more information about our services, visit us today at http://professionaltaxresolution.com/. With over 16 years of experience, we have a thorough understanding of tax law together with the experience to know which tax settlement option will best fit with your specific set of circumstances. Contact us toll-free by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.
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