Have a tax liability? Here’s what to do next…
Owing the IRS any amount of money can seem like a nightmare situation, but it happens. Nobody wants to be subject to collection actions, but life is not always predictable. Fortunately, the IRS is aware of this, and has options for people who find themselves unable to pay their liabilities up front. So before you let your mind contemplate the worst case scenario and any corresponding worst solutions (like avoiding paying your taxes entirely), consider the solutions that are already available.
If you have the means to pay your debt but simply need more time to do so, you may request a one-time extension from the IRS. Extensions can be up to 120 days, with a monthly interest penalty on your unpaid balance. Make sure that the extension will be enough time to pay off your debt if you plan on requesting one.
In some cases, you may be able to pay your balance over an even longer period of time through a payment agreement with the IRS. As with all of the options listed here, it is important to know just how much you owe going in. Use your tax returns or contact the IRS directly to verify your total amount owed. Generally, the IRS accepts payment plans that will pay in full for those with a balance below $10,000, including penalties and interest. As part of the process, you will need to document your income and allowable expenses through a 433F form.
If your situation is such that you will not be able to pay back your liability, even through the above options, you may qualify for the hardship options offered by the IRS. One option is a Partial Pay agreement. Partial Pay agreements are similar to payment plans, except that the total amount paid is less than your full liability. Therefore, the IRS will review your case at intervals, and notify you of your need to arrange another plan once your situation changes for the better. The other option is a Currently Not Collectable agreement, and involves a thorough review of your finances to determine whether you are earning very little or no income. If so, your debt will be suspended until such time as you are able to pay it. The necessary review of your finances that comes with applying for hardship options can include proof of income, bank statements, and more.
The IRS offers the above options because they, too, want to keep you out of collections. Nevertheless, if you find that you are unable to deal with your tax liabilities on your own, it is important that you know your options as well and as soon as possible. Tax relief companies and the IRS themselves are always ready to help you figure out what will work best for you.