Individuals with IRS debt often fail to realize the financial ramifications that occur when taxes go unpaid. Instead of addressing the problem, taxpayers who are unable to make restitution often ignore the problem. However, there are solutions available which can help people reduce or eliminate late fees, penalties and accrued interest. In some cases, back taxes can be completely eradicated.
Regardless of the amount of IRS debt owed, it is usually best to work with a tax accountant to resolve tax problems. Contrary to popular belief, the Internal Revenue Service is willing to help taxpayers establish an affordable payment plan or write-off a percentage of back taxes.
Taxpayers who ignore IRS debt collection letters are setting their self up for financial fallout. The Internal Revenue Service assesses penalties, late fees and interest against unpaid taxes. Taxpayers who fail to submit yearly tax returns or pay outstanding taxes can be incarcerated for tax evasion. Therefore, if you owe taxes, now is the time to stop procrastinating and take action to clear up tax debt.
The first step involves calling the Internal Revenue Service taxpayer assistance call center. These centers are open Monday through Friday between the hours of 7 a.m. and 10 p.m. Individual taxpayers can obtain tax assistance by calling 1.800.829.1040. Business owners and self-employed taxpayers can call 1.800.829.4933 for tax help.
Individuals who owe $25,000 or less in IRS debt can establish a tax payment plan online. Taxpayers must first submit Form 9465 Taxpayer Installment Agreement Request. Once approved, taxpayers can select from three payment options including monthly installments, pay in full, or obtain a short term extension which allows taxpayers to pay outstanding taxes in full within two to three months. At present, the IRS charges taxpayers a user fee of $105 to establish a payment plan. This amount is reduced to $52 when a direct deposit account is setup.
It is important to note that taxpayers cannot obtain approval for IRS payment plans until all past due tax returns are filed. Past due tax returns incur a failure-to-file penalty of 5-percent for each month the tax return is delinquent, with a maximum fine of 25-percent.
Taxpayers who have filed their returns, but have not paid outstanding taxes incur a monthly failure-to-pay penalty of 1/2-percent until the debt is paid in full. Unpaid tax penalties are calculated from the original filing date and assessed until back taxes are paid.
Taxpayers owing more than $10,000 in back taxes might qualify for the IRS Partial Payment Installment Agreement. This option usually requires assistance from a tax lawyer. Any past due tax returns must be filed before an installment plan is approved. Taxpayers submit monthly installments until the agreement is fulfilled and the IRS forgives the remaining tax debt.
One option for taxpayers who are able to pay a reasonable amount toward outstanding IRS debt is known as Offer in Compromise. Using this tax relief option, the IRS agrees to accept less than the full amount of outstanding taxes owed.
The IRS typically enters into Offer in Compromise agreements if there is little chance of collecting the full amount of back taxes. When this tax relief option is used, taxpayers must allow the Internal Revenue Service to retain future tax refunds which will be credited to outstanding taxes, and submit monthly installment payments until the back taxes are fully paid.
Homeowners who fell into foreclosure may qualify for tax relief under the Mortgage Forgiveness Debt Relief Act. Debt forgiven through foreclosure or debt reduced through mortgage refinancing of their principal residence may qualify.
Taxpayers who entered into personal or business bankruptcy must adhere to 908 Bankruptcy tax codes. Cancelled debt through bankruptcy is a complex matter which is best handled by a tax lawyer or Certified Public Accountant.
Although IRS debt can appear to be overwhelming, there are solutions which can solve the problem. Available tax debt payment options and answers to common tax questions can be found at IRS.gov.