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Help! I owe the IRS!

Updated: Apr 19, 2019

In our last blog post, we discussed ways taxpayers can pay amounts due before the April deadline. But what if you owe the IRS more than you can pay? Taxpayers in this position have several options. Some, such as taking out a personal loan or paying the tax debt with a credit card, might work for small debts but not be feasible for larger balances. Others, such as hiring the guys who advertise on late-night TV to settle your debt, are probably not in your best interests.

The Taxpayer Advocate Service, an affiliate of the IRS, has an informative video on the topic here . The IRS’s own site also has a wealth of information on what to do if you owe more than you can pay; click here and follow the various links about the different payment plans.

Before delving into better payment options, it’s important to understand that failing to file a return does not postpone a tax bill. To the contrary, interest and failure to file penalties accrue on the unpaid bill, making this a costly choice. Taxpayers who do not file their returns and acknowledge their debt could ultimately have their passports revoked, liens placed on their houses, bank accounts seized, or their wages garnished. Fortunately, this can be prevented with some proactive steps.

The first step in paying off a tax debt is to figure out how much you realistically can pay. If you will be able to pay your entire tax bill within 120 days, a call to the IRS is all that is required to get this additional time. Be aware that while this option does not require an application or additional set-up fees, interest and penalties continue to accrue on your balance until it is paid in full.

If you need more than 120 days, you can set up an installment agreement. To do this, taxpayers must have filed all required tax returns for this and prior years. Application fees for installment agreements range from $31 to $225 depending upon the methods used to set up the plan (phone, mail, online, etc.) and the payment methods chosen (bank draft, credit card, check, etc.). As long as payments are made on time, the IRS will not take any collection action; however, they will keep any future tax refunds and apply them to the balance until it is paid off. Taxpayers who become unable to pay as agreed due to a change in their financial situation should renegotiate their installment agreement to avoid defaulting and starting collection action.

If you already have an installment agreement set up because of a prior debt, you may be able to revise that plan to include amounts due for this year. Likewise, if you let an installment plan lapse, you may be allowed to reinstate it. A ten dollar fee is charged for these actions.

While the above actions can be undertaken by taxpayers online or by phone, many prefer to seek our assistance. When we help our clients establish payment plans, we also check to see if penalty abatement requests should be pursued. And of course we work with the client to make any necessary changes to withholding or estimated tax payments to prevent additional tax bills in the future.

The final option, however, definitely requires professional involvement. Taxpayers who owe too much for an installment plan to be a viable option may request an Offer in Compromise (OIC). The IRS will only accept an OIC if, after scrutinizing the taxpayer’s total financial situation, they feel they will be unable to collect the full balance owed and therefore are willing to accept a partial payment as payment in full. This is a serious step that takes time for the IRS to process. If an OIC is accepted, the taxpayer must stay in full compliance with the tax law for the next five years or the agreement is voided and collection procedures can start anew. As you can see, an OIC is much more involved – and much less certain – than the late-night guys make it sound!

If you owe the IRS more than you can pay, there’s no need to panic. We can help you explore your options and assist with your communication with the IRS. Give us a call so we can get started!

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