The following is a guest post from M Davis at Back Taxes Help.
With the troubled economy it is becoming very common for individuals and business to not be able to pay their taxes. It is an understandable situation when a taxpayer must use funds to pay for necessities after losing some sort of income or incurring large unexpected expense prior to making their tax payments. If this has happened to you it is important to understand your options. If you realize your problem right away and take actions to resolve it you will likely receive a favorable outcome.
When you cannot pay your taxes owed it really isn’t that big of a deal to the IRS. The IRS knows situations do arise when a taxpayer can’t pay their taxes and they have created various methods for a taxpayer to pay back the taxes owed or even settle the taxes for less if they meet specific requirements. Below are the 4 most common methods that can be used by taxpayers to resolve taxes when they cannot pay in full.
1) Installment Agreement – An installment agreement is the most common method used for taxpayers to pay back taxes when they cannot pay in full. With an installment agreement the taxpayer is allowed to pay back taxes owed over time in monthly increments that are manageable to the taxpayer. With an installment agreement it is typically required that the taxes owed are paid off in a period no longer than 60 months. It is typically better to pay off the installment agreement quicker because the IRS still charges interest on the outstanding balance. The good thing to know about IRS interest is typically lower than most credit card interest rates and bank interest rates. Once your installment agreement has been accepted you will be considered in good standing with the IRS as long as you do not default on your monthly payments.
2) Partial Payment Installment Agreement – With a partial payment installment agreement the taxpayer is allowed to make smaller incremental payments towards the tax debt owed than what is required with the normal form of an installment agreement. This type of installment agreement is available only to those taxpayers that can’t meet the monthly required amounts of a normal installment agreement. In order to qualify for this you must prove to the IRS that even if you were to sell your assets you would still not have enough to pay back the IRS and you have no other repayment options available. The IRS will require an updated financial statement from you about every two years to determine if they can collect more money on a monthly basis. Many times a taxpayer will end up paying less than the total amount of taxes owed because the statute of limitations on the tax debt expires before the total amount is collected. The good thing to know about this type of payment plan is that you will be considered in good standing with the IRS as long as you can maintain the required monthly payments.
3) Prove IRS Hardship – When you prove IRS hardship you will be considered uncollectible to the IRS. When you are considered uncollectible they will not enforce collections of the taxes owed for the time being. Getting declared uncollectible happens when you can prove to the IRS that you cannot pay your taxes now and cannot pay them in the near future. A typical case for this would be if someone is disabled and because of this they are unable to work to gain funds to pay their taxes. If this person is able to prove to the IRS their disability then they may be declared uncollectible by the IRS. When a taxpayer is declared uncollectible the IRS will check back to reassess the financial situation of the taxpayer every year to couple of years. If the IRS determines that the financial condition of the taxpayer has improved enough then they will begin to enforce collections again, as long as the statute of limitations has not expired. Being declared uncollectible can be a financial life saver for those taxpayers in need because it will allow them time to get back on track with their financial situation before the IRS requires them to pay what is owed.
4) Offer in compromise – An offer in compromise is a tax settlement program offered by the IRS to allow taxpayers to settle their taxes for less than the total amount owed. This form of settlement is only available to those taxpayers that are financially burdened. The IRS really only accepts this form of settlement if they believe there is doubt to the tax liability or doubt to collectability. The IRS says they will not accept an offer in compromise unless the amount offered is equal to or greater than the amount the IRS expects they would ever be able to collect from the taxpayer, even if they sold off their assets. This type of tax filing is one of the most complex tax filings and is very difficult to obtain. Many people who may qualify for this end up in a partial payment installment agreement or are declared uncollectible because of how tedious the filing is. If you have your offer in compromise accepted by the IRS and you make the required settlement payment then you will be considered in good standing with the IRS.
No matter what your financial situation is there will always be a method for you to get back into good standing or remain in good standing with the IRS. When choosing the best method it is important to take a look at your current financial situation and your anticipated future financial situation. Just remember that the IRS has it in their best interest to make many options available to taxpayers to pay back their taxes because they end up collecting more in the long run. Don’t be scared of the IRS and work with them on a resolution with them because with the proper documents and filings you can find a manageable alternative to paying in full.
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