Taxpayers that have tax liabilities they are currently unable to pay, have options. A knowledgeable and experienced tax attorney can assist and inform taxpayers of all of the options available to settle tax debt. First and foremost, taxpayers should take action as soon as possible, and still file their tax return even if they cannot pay their tax bill in full. The IRS charges penalties and daily interest on unpaid tax bills, thus waiting only increases overall tax liability. After determining and estimating what, if anything, they can pay to settle their tax liability, taxpayers have the following options:
1. Payment within 120 days.
The IRS offers up to 120 days to make payment in full. Since this is not a formal payment option, there’s no application fee, but interest and any penalties continue to accrue until payment is made in full.
2. A bank or credit card loan.
Since the interest rate and fees charged by a bank or credit card company are often lower than the interest and penalties mandated by the Internal Revenue Code, this type of option, including refinancing a home or obtaining a home equity loan, may solve the immediate problem and save money in the long run. Keep in mind that the IRS limits the number of credit card payments to two for individual income tax payments for the 2016 tax year.
3. Installment Agreement
Taxpayers may request an Installment Agreement, setting up fixed monthly payments. In contrast to payment within 120 days, this is, in fact, a formal agreement with the IRS that involves completing an application and paying fees. Taxpayers that have filed all of their tax returns and owe $50,000 or less in combined individual income tax, penalties and interest may apply for an installment agreement online or with the help of a tax professional.
4. Offer-In-Compromise
An Offer in Compromise (OIC) allows taxpayers to pay less than the full amount owed. An application must be submitted with required fees and a portion of the tax debt. Once the IRS accepts an offer for an OIC from a taxpayer, he or she must timely file tax returns and make payments for five years.
5. Currently Not Collectible Status
The IRS understands there may be times when someone can’t pay a tax debt due to the circumstances of their current financial situation. If the IRS agrees that a taxpayer cannot both pay his or her taxes and also pay reasonable living expenses, it may place an account in a status called “Currently Not Collectible.” The IRS will not seek to collect payment while an account is in “Currently Not Collectible status,” but the debt is, of course, not extinguished while penalties and interest continue to accrue.
If you have tax liability that you are currently unable to pay, you have options. Call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
