subject: IRS Debt: Tips for Working with the Internal Revenue Service [print this page] IRS Debt: Tips for Working with the Internal Revenue Service
IRS debt can present serious financial consequences. The Internal Revenue Service charges taxpayers penalties, interest and late fees which can more than double the amount owned. People who neglect submitting annual tax returns or fail to pay outstanding taxes can be charged with tax evasion. Anyone who owes money to the government should become proactive to rectify the situation.
Solutions exist to clear IRS debt. The Internal Revenue Service will usually work with taxpayers who seek help to develop a payment plan. In some instances, the IRS will discharge a percentage of back taxes. Taxpayers who ignore IRS tax collection letters are setting their self up for unnecessary financial hardship.
The first step to resolving tax problems involves contacting the IRS taxpayer assistance center. Offices are open between the hours of 7 a.m. to 10 p.m., Monday through Friday. Individual taxpayers should call 1.800.829.1040, while business owners and self-employed taxpayers should call 1.800.829.4933.
The Internal Revenue Service allows taxpayers owing less than $25,000 to establish an IRS tax payment plan online. Taxpayers must first submit Form 9465 taxpayer installment agreement request to obtain approval.
Once IRS approval is obtained, taxpayers elect their payment option. Options include: paying taxes in full, via monthly installments, or establishing a short term extension which allows tax debt to be paid in full within 90 days.
Currently, a $105 user fee is assessed to establish tax payment plans. The IRS reduces this fee to $52 when taxpayers setup a direct deposit account.
The IRS does not grant tax payment plans until all past due tax returns have been presented. The Internal Revenue Service charges taxpayers a failure-to-file penalty of 5-percent for every month tax returns are delinquent. Maximum penalties are limited to 25-percent.
When taxpayers file returns but fail to pay taxes, the IRS charges a monthly failure-to-pay penalty of 1/2-percent. This penalty is from the original filing date and is assessed until taxes are fully paid.
Taxpayers with IRS debt of $10,000 or more should consult with a tax attorney to determine if they qualify for a partial payment installment agreement. Taxpayers must submit all past due returns prior to requesting an installment plan. The IRS requires taxpayers to submit monthly installments until the agreed upon tax amount is paid. Once the agreement is fulfilled, the IRS forgives remaining back taxes.
When taxpayers are financially incapable of repaying tax debt in full, they can request an Offer in Compromise agreement. Using this tax relief option, the IRS accepts less than the full amount of taxes owed.
Offer in compromise is usually the last option available to distressed taxpayers. The Internal Revenue Service only enters into compromise offers when there is little change of collecting the full amount owed. Taxpayers who obtain offers in compromise submit monthly payments until the contractual agreement is fulfilled and agree to let the IRS keep future tax refunds which are credited to back taxes.
Borrowers who fell prey to foreclosure might qualify for tax relief under the Mortgage Forgiveness Debt Relief Act. Taxpayers can only claim debt forgiven through foreclosure or mortgage refinance of their principal residence.
Taxpayers who filed personal or business bankruptcy may qualify for tax relief under IRS 908 bankruptcy tax codes. Debt cancelled through bankruptcy is a complex matter which should be handled by a tax lawyer or CPA.
While IRS debt can be overwhelming, solutions exist to solve the problem. Taxpayers can locate payment options and review frequently asked tax questions at IRS.gov.
