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What To Do If You Can’t Pay The IRS…

March 23, 2011

I would say the worst part of being the tax man is giving clients bad news that they owe money. The majority of clients are surprised that they owe. One of the biggest questions we then get at GAI (www.gunwel.com) is what to do when you can’t pay the taxes you owe by April 15th ( or this year it is actually April 18th, due to a holiday in Washington DC). It is very possible that the IRS will work with you, but you need to know all your options.

  • File an extension to pay. A little-known provision allows taxpayers suffering severe hardship additional time to pay their taxes without incurring penalties, although interest continues to accrue at the standard federal rate plus 3 % per month. Form 1127 Application for Extension of Time for Payment of Tax Due to Undue Hardship isn’t automatic, like the filing extension, and you’ll have to have extenuating circumstances to be approved. Today’s economic climate gives many people a reasonable chance. If you have suffered an illness, job loss, death in the family or other extreme circumstances and you can’t pay your taxes it is worth trying.
  • Work out a payment plan. More likely, the IRS will approve an installment agreement. File Form 9465 Request for Installment Agreement and, if the amounts is $25,000 or less inclusive of combined tax, penalties and interest, you may qualify for streamlined acceptance procedures that don’t require additional documentation. If the amount you owe exceeds $25,000 the IRS will likely require a “financial CT scan” which includes documentation of your income, assets and expenses to determine how much you can afford to pay every month.
  • Consider a settlement. Settlements from the IRS are a last-resort method to settle up what you owe. If you have a financial hardship, few assets or limited  ability to repay what you owe, the IRS has distinct settlement options based on whether you truly owe the tax, whether you have the ability to repay and other factors. If you qualify, you may be able to satisfy your liability by paying less than your balance, interest and penalties. There are stringent criteria for each case, however stay clear of anyone that guarantees settling for pennies on the dollar as it just doesn’t happen that way.

 Whatever you do, don’t fail to file your taxes, and do your best to stay current with ongoing tax obligations. If you fall behind on your current tax obligation, the IRS may cancel any installment agreements you have. Give us a call at 212-979-6830 or stop by for a visit. Gunwel Tax & Bookkeeping Service has over 24 years of tax experience and would love to help you with all of your tax needs. We are open Monday through Friday from 8am to 8pm and Saturdays 8am to 5pm. You work hard for your money, let Gunwel work smart to help you keep it. See you soon!

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