If you can’t pay the the full amount of what you owe the IRS because you’re broke, you’re not alone. An estimated 1 in 10 Americans has some sort of tax problem. If you’re one of them, here are five things you need to know.
- Waiting to file doesn’t help–it only makes your IRS problem worse
File your return on time, no matter what – even if you can’t pay. If you have any other unfiled returns, file them as well. The IRS won’t negotiate unless you’re filing is up-do-date. Worse yet, the IRS has the power to prosecute people who don’t file and can ask the court to sentence you to jail.
- Don’t go it alone
The IRS is the most powerful collection agency in the world. You’re at a big disadvantage if you try to face the them alone. You can partner with a CPA, tax attorney or enrolled agent experienced in handling IRS collection issues. If you have representation, you won’t even have to speak to the IRS.
- You may not have to pay your entire IRS bill in full immediately
The IRS offers alternative payment options for taxpayers who can’t afford to pay their tax bill in full. But they won’t consider any type of tax settlement or payment plan until you have filed all of your tax returns.
If you owe less than $10,000 in back taxes, you have a clean IRS record and all your tax returns are filed, you can call the IRS directly and they can arrange a payment plan to be paid in 36 monthly installments. It’s guaranteed.
If you owe $10,000 or more in back taxes, you will want to partner with a CPA, Enrolled Agent or an attorney to increase your chances of qualifying for an IRS payment plan, helping you negotiate an affordable payment agreement and remove any bank levies, tax liens or wage garnishments.
- You may qualify to settle your tax debt for a fraction of what you owe
An Offer in Compromise (OIC) program, established by the U.S. Congress, helps taxpayers who have severe financial problems get a fresh start. If you qualify, you may pay a less than full amount due. The IRS approves only a fraction of OIC requests, however.
Taxpayers who try to go through this process by themselves, without proper expert representation, risk getting it rejected. They could end up owing the IRS more money than when they started the process, in addition to accruing penalties and interest.
- The IRS may waive some penalties if you can show reasonable cause
The IRS may consider conditions such as a death in the family or health issues. The longer you wait, the less likely you are to successfully show reasonable cause.
Those conditions, or any others you want the IRS to consider, will require supporting documentation, such as death certificates, police reports, divorce decrees, and insurance policies.
While you can always represent yourself before the IRS, most people find it frustrating, intimidating, and time-consuming. Hiring a tax resolution expert to negotiate your tax debt on your behalf. They’ll work on your behalf while you get on with your life–and you’ll likely find that the benefit far outweighs the cost.
If you need help because you can’t pay the IRS what you owe, read our Special Reports below.