Did you get hit with an unexpected tax bill this year? If you did, you’re not alone. Many taxpayers were caught off-guard when they prepared their tax returns. Although it’s tempting to ignore your tax balance, that won’t solve the problem. The IRS will eventually catch up with you and you’ll be facing mounting penalties and interest fees. If you continue to ignore their payment requests, you could also be slapped with a tax lien or levy, or even have your wages garnished. If you can’t pay your taxes in full, however, there are four things you can do right now to address your tax debt and stay out of trouble with the IRS.
Request a Payment Plan
The IRS offers a variety of payment plans and installment agreements to help you pay your tax debt off over time. The two most popular are:
- Short-Term Payment Plan. If you can pay your tax debt within 6 months (180 days), this is a great option. You can apply online or by calling 800-829-1040. There is no application fee. Penalties and interest, however, will continue to accrue until your balance is paid in full.
- Installment Agreement. Also known as a long-term payment plan, an installment agreement allows you to pay over several months or years. To request this type of plan, complete Form 9465, Installment Agreement Request, apply online or call 800-829-1040. Unlike short-term payment plans, there are user fees that will vary based on how you apply and how you make your monthly payments.
Before you can apply for either type of payment plan, you must be current on all tax filings. If you’re in an open bankruptcy proceeding or have unfiled taxes, the IRS will likely decline your request.
See If You Qualify for an Offer in Compromise
Another option for dealing with your unpaid taxes is an Offer in Compromise (OIC). With an OIC, you can settle your tax debt for less than you owe. The catch is that you’ll need to prove that paying your taxes in full would cause extreme financial hardship. The IRS considers certain factors when reviewing your request:
- Ability to pay
- Income
- Expenses
- Asset equity
If your OIC amount is equal to or more than what the IRS thinks it can collect, it will likely approve your tax settlement offer. You can choose either a lump sum cash offer (must be paid in full in 5 payments or less) or a periodic payment plan (multiple monthly payments). To apply, you must complete Form 656 and Form 433-A (OIC). You are also required to pay a $205 application fee and include your initial payment with the forms.
Request Currently Not Collectible Status
If you are unable to make any payment at all, you may qualify for Currently Not Collectible (CNC) status. Although this does not reduce or remove your existing tax debt, it can give you a much-need break from making payments until you are in a better financial position. There is no formal application. To request CNC status, complete Form 433-A or Form 433-F and call the IRS at 800-829-1040.
While under CNC status, the IRS will not levy your accounts or garnish your wages. Any future tax refunds, however, will be offset to pay down your debt. Each year, the IRS will also review your financials. If there has been a significant change, collection efforts may resume. It is possible that your tax debt may be written off if you remain under CNC status and the statute of limitations expires.
Speak With a Tax Professional
Although you can apply for a payment plan, OIC, or CNC status on your own, it may be beneficial to speak with a tax professional. Each of these programs has separate qualification criteria and application processes. Some, such as OIC and CNC, also require extensive financial disclosure. An experienced tax professional, like those at Tax Defense Network, can help determine which program is best for you. They can also guide you through the process and potentially increase your chances of approval.
To find out if you are eligible for any of these tax relief options, please call Tax Defense Network at 855-476-6920 for a free consultation today!