The IRS provides alternatives to taxpayers who are having a tough time coming up with the cash to fulfill their tax debt obligations.
“In this world, nothing can be said to be certain… except death and taxes,” proclaimed founding father Benjamin Franklin. Being unable to pay your taxes is a horrible feeling. While there is technically no such thing as “Debtor’s Prison” anymore, you can still face jail terms for tax evasion – just ask actor Wesley Snipes, who is serving a three-year sentence for failure to pay $1.4 million in commissions. Many more Americans suffer wage garnishments, liens, and hefty penalties for failure to fulfill their legal tax debt obligations.
Naturally, this is a position you don’t want to find yourself in, so it’s best if you consider alternate payment agreements offered by the Internal Revenue Service. For example, if you’re unable to pay your entire tax debt, you are encouraged to pay what you can to lessen the amount of penalties and interest owed. You should then call, write, or visit the nearest IRS office to explain your situation.
Another way to get some kind of tax relief is to file for a 60 or 120 day extension. Penalties and interest incurred will be less if you choose an installment payment agreement. To be eligible, you must file for the extension before the official tax due date.
If you honestly cannot make a full tax payment or even pay the amount of an installment tax relief agreement, then you may request a Collection Information Statement to determine a better payment plan. Some people may be granted a temporary delay or significant hardship consideration. If it seems unlikely you’ll ever be able to get tax debt relief, you may qualify for an Offer In Compromise, which settles your tax debt for less than the total amount owed.
Before automatically filing for the extension, consider alternate ways to drum up money for tax debt relief. For example, you may be eligible for a cash advance on your credit card or a low-interest loan through your bank or federal credit union. You may have some savings you can liquidate or you may borrow against assets like a 401K, mortgage, or life insurance policy for tax debt relief. This option is especially wise for people who owe $10,000, since the installment payments could be as high as $339/month, plus 6 percent interest. In this case, a person would receive tax relief of $2,247 by paying the full amount right away.