In recent years, the Internal Revenue Service (IRS) has been more susceptible to generating overdue tax payments (usually based on installment agreements). How to settle taxes with the IRS?
A new beginning for late taxpayers
In 2011, the IRS implemented the Fresh Start program, which aims to ensure that Americans with delayed repayment of tax liabilities are repaid.
“We are introducing fundamental changes to our pledge system and other tax collection tools that will help taxpayers and give them a new start,” said IRS Commissioner Doug Shulman. “These steps are good for people in difficult times and reflect a responsible approach to the tax system.”
Always submit your return
It is helpful that the IRS offers more options for taxpayers struggling with hardships, and you also need to do the right thing.
First: if you owe the IRS an amount that you can’t pay as a lump sum by April 15, it’s important to refund anyway, says Lawrence Brown, lawyer at Brown PC in Fort Worth, Texas.
“This will reduce some penalties,” he explains. “Sometimes customers tell us that they didn’t make the declaration because they couldn’t pay the tax due. This usually means that they pay penalties that are much higher than they would have paid had they at least made a declaration. “
Select a payment option
The initial payment will vary depending on the offer and payment option chosen:
Flat-rate cash: send an initial payment of 20 percent of the total bid amount with your application. If your offer is accepted, you will receive written confirmation. Any remaining balance due from the offer is paid out in five or fewer payments.
Interim payment: Submit your first payment along with the application. Continue to repay the remaining balance in monthly installments while the IRS is considering your offer. If accepted, continue to pay monthly until it is fully paid.
An offer in compromise
The IRS sometimes considers a settlement that allows you to pay back a reduced amount of tax overdue, which is called a compromise offer. You must convince the IRS that you cannot afford to repay what you owe and offer a reduced amount as a lump sum or in short-term installments.
Although you could see TV commercials suggesting that paying IRS pennies for a dollar can be easily realized, such ads are misleading. The IRS has a special form that must be completed when proposing a compromise, and charges a $ 186 application fee. The form requires detailed information about your income, spending habits, assets and any investments you have. If you work for or for remuneration, you must also submit a collection statement that measures your ability to pay.