The most common reason for not filing tax returns on time is when a tax bill is owed.  Unfortunately by not filing, the unpaid balance of your taxes will be charged with the failure to file penalty which is 5% a month. If you do not owe the IRS money and you did not file, the IRS will not impose penalties as long as they agree that no taxes are owed. If you are owed a refund and do not file, the IRS will not send you the refund until your taxes are filed. The IRS does not look favorably on individuals who fail to file their income tax return by the deadline, however they will be more willing to work with individuals who take the necessary steps to fix the problem versus those who pretend it doesn’t exist.  If you haven’t filed your return on time, the following information can help you back on track and avoid additional fees and penalties.

• File your tax return as soon as possible-  There is no way around it, you must file your tax return even if you are filing it late.  After the deadline passes you no longer have the option to request an extension, therefore the sooner you file your return the better.
• Determine how long it will take to pay your tax bill-  Look at your current financial situation and figure out how much time is needed to pay your tax bill.  The ideal scenario would be that you have the resources available to pay your bill in full, therefore eliminating the additional fees and penalties that will accrue over time.  If you do not have the resources on hand to pay your tax bill you should determine how long it will take to repay the money owed.  This information will be needed in order to set up an installment agreement or other type of payment plan.
• Contact the IRS to arrange payment-  As long as your tax bill remains unpaid, you will continue to accrue penalties and fees that can significantly increase the amount of money owed.  By working with the IRS to establish a repayment plan, you can begin making payments to reduce your tax bill, thereby reducing the amount of fees and penalties that are applied to the liability.
• Consider a loan-  Depending on the amount of money owed and your ability to secure personal financing, you may want to consider borrowing money to pay off your tax bill.  Before doing so you should carefully review the terms of any new loans to ensure you are selecting the option that will save you money in the long term.

It is not uncommon to feel overwhelmed or intimidated when dealing with the IRS and unresolved tax issues.  If you have failed to file your tax return on time and do not feel up to dealing with the situation on your own, consider hiring a tax professional to help guide you through the process.  Delaying the inevitable will only result in additional stress on your part and a growing tax bill that will have to be addressed at some point in time in the future.  The sooner you face the situation and develop a plan to deal with any taxes owed, the sooner you will be able to resolve the problem and move on with your life.

Related posts:

1. When to File a Late Tax Return or Request a Tax Extension
2. 2010 Tax Filing Extension: Instructions & Forms to File IRS Extension
3. Filing a 2011 Tax Extension: 2012 Deadline Dates & How to File

The IRS set new policies that intend to help those with back taxes or tax debt. Here is a review of these policy changes:

Tax Lien Changes

The IRS announced a few major policy changes in regards to tax liens.

• The IRS will increase the tax debt threshold in which tax liens are generally issued from  $5k to $10k. This can help those having trouble paying taxes at lower amounts prevent their financial situation from deteriorating so that they can get back on their feet or into compliance. As a result, less tax liens will be filed. The IRS will revisit lien threshold changes next year to see the effects of this specific policy change.
• The IRS will also make it easier to obtain tax lien withdrawals. This means once a taxpayer has come into compliance (e.g. paid off the tax debts and or setup acceptable arrangements with the IRS such as an IRS Installment Agreement), the IRS will make it easier to get the lien expunged from a taxpayer’s record. Normally, even when back taxes are paid, a person’s record or credit report will show the lien as being “released,” which still does harm to the taxpayer. Now the IRS, once the taxpayer requests it, will get the lien completely withdrawn from public records.
• The IRS will make it easier for taxpayers owing $25k or less, to get a tax lien withdrawn through direct debit installment agreement arrangement. The IRS has stated that taxpayers who enter into a Installment Agreement via direct debit (DDIA), or if taxpayers in a normal installment agreement already move to Direct Debit Installment Agreement (DDIA), the IRS will withdraw a tax lien. If a taxpayer already has a DDIA, then they will need to make an IRS request to have the lien withdrawn.

The financial benefits taxpayers with these tax lien changes is that less tax liens will be filed, and many other existing tax liens will be withdrawn. This will most likely allow taxpayers to get back on their feet or prevent credit deterioration as a smeared credit report with a tax lien can hurt Americans in terms of obtaining a job, mortgage, car loan, or even renting a home. This is turn should help taxpayers get into compliance and help the IRS increase their Collection Potential for taxpayers that owe. Moreover, DDIAs have a lower user fee and the normally result in higher compliance rates with taxpayers making automatic monthly tax payments.

Offer in Compromise Changes

• The IRS is expanding a new streamlined Offer In Compromise (OIC) program – With the economy taking  a toll on taxpayers, the IRS intends to make it easier for taxpayers to obtain an OIC by allowing taxpayers who owe  $50,000 or less and who make up to $100k to qualify for an OIC (previously was $25,000 or less).  The IRS look at a taxpayers financial situation to make sure they cannot pay the tax liabilities over time or in one payment before the taxpayer can settle for less.

The financial benefits here again just like the other policy changes across IAs and tax liens it that many more taxpayers who are facing financial difficulties will be able to settle for less than they owe as long as their financial situation qualifies. This in turn should lead to more OICs being accepted and the IRS collecting  tax revenue that most likely would not have been collected through normal enforcement actions.

Installment Agreement Changes

• The IRS will provide incentives for taxpayers who convert and existing non-direct debt Installment Agreemnet or setup a DDIA. This is bit of redundant as it is discussed above, but the benefits here now with an Installment Agreement is that a tax lien can be negated if the taxpayer elects to have the monthly tax payment deducted directly from their bank checking account. This will also increase compliance for many more taxpayers preventing defaults or missed payments.
• The IRS is making it easier for small businesses to obtain Streamlined Installment Agreements. A Streamlined Installment Agreement does not require a collection information statement (form 433-B for businesses), that is why they are “streamlined.”  Now that a small company is not required to verify of assets, liabilities, and revenues, if they owe between $10,000 and $25,000 (previously small business had to owe $10,000 or less). However, small businesses in order to qualify will need to setup the Streamlined Installment Agreement as direct debit and be willing to pay back tax liabilities over 24 months.

The financial benefits again are that individual taxpayers can avoid tax liens or have tax liens expunged if they setup a direct debt installment agreement. This will help taxpayers regain financial strength by preventing their credit reports from being negatively impacted. Moreover, small businesses can qualify for Streamlined Installment Agreements, and both businesses and individuals will benefit from DDIAs lower user fees. However, the IRS will need to see a period of compliance with direct debit before tax liens will be withdrawn.

Overall, it seems that the IRS has listened, especially to the National Taxpayer Advocate report that was released last month. These changes will benefit the taxpayer, the IRS and the Federal government revenues overall. It will be a win win situation for all parties involved most likely.

Related posts:

1. Why an IRS Payment Plan is Not Always Best If You Owe Taxes
2. New York’s “PAID” Saves Taxpayers Up to 80% in Penalties & Interest
3. Can’t Pay Taxes? Set Up an Installment Agreement

How an IRS Payment Plan Works

An IRS Installment Agreement or an IRS Payment Plan is a financial arrangement that allows taxpayers, who owe back taxes to the IRS, to pay off their taxes over a series of monthly payments. These payments can be over 3-5 years generally. IRS Installment agreements are best for taxpayers who owe $25k or less in Federal taxes. They can be obtained if taxpayers owe more than $25k, it is just more difficult. It is much more common to setup a payment plan with the IRS then to settle for less taxes than you owe.

Like most resolution methods, there are costs and benefits to setting up an IRS Installment Agreement with the IRS.

IRS Installment Agreement Benefits

Some benefits to an IRS Installment Agreement are as follows:

• The taxpayer who cannot pay off all the taxes at once has the ability to pay the taxes off over time
• The taxpayer gets a reduction in the Failure to Pay Penalty to .25% per month (normally .5%,  with the maximum being 25%).
• The taxpayer can avoid severe hardship, and feel a lot better knowing the IRS will not pursue harsh collection actions like levies

IRS Installment Agreement Drawbacks

Of course, like anything else the IRS Installment Agreement has some drawbacks:

• The taxpayer will end up paying more taxes in the long run then if the taxes were paid off all at once because of interest and penalties
• The taxpayer may still incur a tax lien in order for the government to secure the IRS Installment Agreement (which impacts credit)
• Sometimes, with high debt amounts over $25k, the IRS may require taxpayers to sell assets in order to lower the payment plan principal balance or taxes owed

Do You Have Alternative Options?

While the installment agreement makes it possible to pay taxes you owe over time, it may not be your least expensive option.  If you can obtain a personal loan from the bank at a lower interest rate, you’ll pay less than what the IRS charges for their loan to you.  Home equity loans or borrowing from friends or family are also possible options to save you money for making payments on the taxes you owe over time.

In some cases, a credit card with a 0% introductory rate is a good option.  If you are sure you can pay off your taxes within the period of the 0% introductory rate, this will cost you nothing more than what you owe on your taxes.  If there is any chance that you can’t pay the entire amount before the 0% introductory rate promotion ends, however, you will pay high credit card interest which is likely to make this option for paying taxes more expensive than an IRS installment agreement.

If you are confused about what option would be best with you, it is a good idea to consult with a tax professional to analyze your tax and financial situation to guide you to the best method of payment or possibly even a tax settlement.

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1. Income Tax Payment Plans for Individuals Who Can’t Pay in Full
2. Can’t Pay Taxes? Set Up an Installment Agreement
3. North Carolina’s Plan to Negotiate Back Taxes With Firms Pays Off

That being said, make sure to act quickly in informing the IRS of your situation and inability to pay. The worst thing that one can do when unable to taxes would be to do nothing, and unfortunately this seems to be the case time and time again. While it may be easier to ignore the problem and withhold payments for the time being, just one missed payment can begin a slew of unpleasant events with the IRS. It’s likely that the IRS will immediately detect the defaulted agreement and take action much quicker than you expect. And, once they begin, garnished wages, tax levies, and other forced collections, all become likely scenarios- causing you to owe even more money.

Sound appealing? We didn’t think so, either. And, even though contacting the IRS to let them know that you cannot make your payments on your tax installment agreement may not be the most enjoyable thing to do, it’ll sure save you a lot of unnecessary stress and trouble. Be sure to explain your situation carefully, capitalizing on any details you deem important. Also, prepare for the call before hand with proper dates and documents to back up your assertion. If your case appears valid, the IRS will likely understand- they are human, too. In most cases they’ll work with you to adjust the installment agreement- either reducing the payments or even deferring them for a later time.

However, the IRS may not be so understanding if they investigate and consider your monetary actions and inability to pay unwarranted. Be advised that the IRS will study each situation carefully; even requesting income and expense documents, in order to make sure that an individual is truly unable to pay because of ill circumstances rather than unwise monetary actions- like gambling in Vegas or making extravagant purchases. But, even if this is this case, contact the IRS anyway, because defaulting on a tax installment agreement with no explanation can yield far worse consequences, as previously discussed.

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1. Importance of Paying Your Installment Agreement On Time
2. What If the IRS Denied My Installment Agreement Request?
3. Can’t Pay Taxes? Set Up an Installment Agreement

An IRS installment agreement allows you to set up a monthly payment plan to pay back the tax money you owe. In order to qualify, you generally need to be in good standings with the IRS. If you owe less than $10,000 and have a clean record you should most likely automatically qualify, as long as you can pay the balance over a 36 month time period. If you owe more than $10,000 but less than $25,000 you should also qualify if you are in good standings. You will then have up to 60 months to pay back the amount due. Special agreements are also often made for those that owe $25,000 by calling the IRS.

If you owe $25,000 or less you can apply right on line at the IRS website or print off the application form and send it in. There is an application fee of around $100.00 which is cut in half if you set up to have your payments automatically withdrawn from your bank account. You can also pay by credit card or with a check or money order. When you get your confirmation that your application was accepted, it will tell you where to send your amount due each month.

If you do decide to apply for an IRS installment agreement, you should know that the IRS can file a notice of federal tax lien on your property in order to secure their investment with you. They can keep the lien on your property until your final payment has been made. They IRS considers a tax lien a passive way to collect what they are due. By placing the lien you have a vested interest in getting the lien removed and will be more likely to make your tax payments.

A tax lien is very serious and should not be taken lightly. It can reap havoc on your credit score, dropping it as much as 200 points or more. A tax lien also stays on your credit for seven years after your final payment. Not everyone will receive a tax lien, but anyone the IRS feels is a risky investment could receive one.

If the IRS decides that they are going to issue a tax lien against your property as part of your installment agreement, they will send you what is called a 2603C letter. This letter will let you know that your agreement has been accepted with the condition of the tax lien. In the letter they must state the date that they will be filing the tax lien. They are required to give you at least a 10 day notice. If you pay off your tax bill before the date given, they cannot file the lien.

If you do receive one of these letters and can scrounge up the money to pay your bill it is in your best interest to do so. If they do place the lien you need to realize that while it is there you will not be able to sell your home and most likely not be able to get any type of credit. This includes opening a new credit card, receiving funding for a car loan, taking out a mortgage or renting an apartment. Your insurance could also go up as many insurance companies now use your credit score to help determine your rate. Some employers even look at credit scores before hiring.

If you do end up getting a lien placed on your property you will want to do all you can to pay off your tax bill quickly. As soon as it is paid off you will want to have the lien removed. Usually the IRS automatically does this within thirty days of your last payment, but you will want to pay close attention and make sure that they do so.

Related posts:

1. Importance of Paying Your Installment Agreement On Time
2. Why an IRS Installment Agreement Will Cost You More
3. Tax Installment Agreement: What You Need to Know

• Not all back taxes are eligible for tax installment agreements – The IRS is unlike creditors or lenders. They are not obligated to accept an installment plan agreement and in many cases they exercise this right. If information on your IRS forms are incorrect or incomplete, a request for an installment plan agreement may be denied. It is important that you provide all the requested documentation and that the information provided is correct, as the IRS will check with public records to verify submitted information. Another reason installment agreements are often denied is the IRS feels you will not make timely payments based on past history or “fudged” information on required documentation. If your application has been denied, you can appeal the decision or enlist the help of a tax professional for further assistance.
• You will end up paying more - Like any other installment plan, you will always end up paying more money in the end for the privilege of paying over time instead of a lump sum payment paid at once. Interest is applied to money owed and will increase the overall amount of money paid on your tax bill. Unfortunately many taxpayers are not in the position to pay their tax bill without the help of an installment plan. If this is the case, it is always better to work with the IRS to set up payments versus ignoring the tax bill all together, which will definitely cost you more money due to penalties and other fees that result from an unpaid tax bill.
• On-time payments are required – If you have successfully applied for and have been granted an installment plan with the IRS, it is imperative you make all agreed upon payments on or before the date due. As previously mentioned, the IRS is not a creditor or lender and will not respond as such when dealing with a taxpayer who fails to meet the terms of an installment plan. Before beginning an installment plan for taxes owed, be sure you will be able to make each payment in full, on time. If for any reason your financial situation changes and you are unable to meet the required payments, contact the IRS immediately to discuss your situation.

The most important thing to remember when dealing with the IRS and unpaid taxes is the need to be upfront and honest. You cannot hide from the IRS and attempting to do so will only serve to increase your financial problems.

Related posts:

1. Can’t Pay Taxes? Set Up an Installment Agreement
2. Why an IRS Installment Agreement Will Cost You More
3. Importance of Paying Your Installment Agreement On Time

Here are some common reasons for denial:

• Information on IRS form 433-A or 433-B is incomplete.
• The information you provided in your filing is not accurate or the IRS has reason to believe it is not accurate. The IRS will check the information you provided against income documents and public records to make sure all information is listed properly.
• The IRS doesn’t trust you will make payments on time, maybe because you had an installment agreement before and you defaulted on some of the payments.
• The IRS thinks your living expenses you listed are not necessary.

If your installment agreement is denied, you can still negotiate with the IRS. Many times the issue can be cleared up with some detailed explanations of items that they questioned. It is a possibility that you made a mistake filling out the form and you will need to submit a revised one to include all valid information. The best way to start resolving your problem is by calling the IRS at the phone number that is listed on the document you received that denied your request. Sometimes issues can be cleared up over the phone if you are able to show you are being honest and want to come to a resolution.

If you cannot clear up the problem by calling then you have several other options that should be considered.

• File for an Appeal: Before requesting an appeal you must first request a conference with the collection manager to discuss the disagreement. If you cannot resolve the disagreement with the collection manager then you can request appeals consideration. In order to file a tax appeal you can file IRS Form 9423 and check the box that says “Denial of Installment Agreement” and describe why you disagree and attach as much documentation as you can.
• Contact the Taxpayer Advocate: If you cannot get your installment agreement in place and the fact that you are not being entered into an installment agreement will cause financial hardship then it is a possibility that you will qualify to use the Taxpayer Advocate services.
• Contact a tax professional to help: If you do not qualify for an installment agreement could mean that you would be a better candidate for another form of settlement. A tax professional can analyze your financial situation and make a determination as to the best settlement method for you.

Most of the time an installment agreement decision can be turned around by working with the IRS on errors or to clarify things on a filing, so don’t give up if your installment agreement request is denied the first time.

Related posts:

1. Tax Installment Agreement: What You Need to Know
2. Can’t Pay Taxes? Set Up an Installment Agreement
3. Why an IRS Installment Agreement Will Cost You More

Why does an installment agreement end up costing me more money? This is the question you need to ask yourself before you apply and move forward. Generally speaking, with a payment plan you are asking the IRS to let you pay off your debt over the course of many months. There is nothing wrong with this, but since you are carrying debt they are going to charge you interest. So as you can see, the longer it takes to pay back your debt the more money you are going to owe.

Throughout the duration of the payment plan you will be charged interest on the unpaid portion. Sure, this amount will get smaller as time goes by, but nonetheless you are still paying more than just your original debt.

What can I do to avoid paying more? The IRS suggests that you attempt to pay your debt in full. If you have enough cash available to pay your entire debt you should do so. This may deplete your cash reserves, but in the long run you will save money because you will not have to pay penalties and interest to the IRS.

If you cannot pay your taxes in full an installment agreement is a good choice most of the time. If you just don’t pay your taxes you will be charged with multiple other penalties that will make your tax balance grow much faster. It is a good idea to assess your different options and decided which is best for you over the long term.

As you can see, an installment agreement will cost you more than if you decide to pay your tax debt in full. Yes, there are times when an installment agreement is the only way to go. Many times the interest and penalties that you will pay when entered into an installment agreement will be less than if you borrowed money in a different way, such as a credit card. This is why thousands of people wind up with a payment plan. But remember this: if you don’t have to apply for an installment agreement you should avoid it. This way you can get rid of your debt without paying the IRS extra money. Don’t you owe them enough?

Related posts:

1. Can’t Pay Taxes? Set Up an Installment Agreement
2. Tax Installment Agreement: What You Need to Know
3. Importance of Paying Your Installment Agreement On Time

Small tax firms are typically better for establishing a long standing relationship to file taxes and maintain accounting records. If you own a business and you need someone to help maintain your books and do normal tax filings that every business needs to make, it is a good idea to go with a local company since this will be an ongoing relationship. Even if you are looking for a professional to help with tax returns and general accounting a local tax firm would be the way to go. Small firms are not better for handling complex tax debt and back taxes issues. Small, local tax companies tend to focus on the normal tax filings and don’t have the manpower and expertise needed to efficiently and effectively handle the complex tax issues that are not seen as frequently.

Large tax firms that serve individuals nationwide have a great advantage over the small tax firms that tend to serve local communities. These large tax firms are able to achieve efficiencies on more complex tax issues. Many of the large firms will hire a variety of different tax professionals (Tax attorneys, CPAs, Enrolled Agents, CPAs & Ex IRS Agents) to handle complex tax issues such as unfiled tax returns, large amounts of tax debts, tax levies, tax liens etc on a daily basis. A tax professional that handles tax levies every day is going to be more efficient and effective than a tax professional that handles them occasionally. Most small firms only see these types of cases occasionally, so it would be a wiser choice to go with a large firm in these cases. Large firms are typically cheaper as well because they know how to navigate IRS issues quicker and more efficient, therefore billing out less total hours on your case. Below are some instances where it would be a good choice to hire a large tax firm that helps individuals nationwide:

• Offer in Compromise Help
• Tax Levy Help
• Tax Lien Help
• Wage Garnishment Help
• Bank Levy Help
• Installment Agreement Help
• Payment Plan Help
• Penalty Abatement Help
• Audit Help
• Innocent Spouse Relief Help
• Back Taxes Help
• Unfiled Tax Help
• Tax Settlement Help

Most people have an apprehension to using a large tax firm that they cannot sit down with directly because they are not local, they shouldn’t. Tax cases are slow moving and are all done by mail and email and there is no need to use a local firm. Everything can be done more efficiently over the phone and through email. Hiring a large nationwide tax firm is a great idea to resolve complex tax issues because you have all the best resources and professionals in one central location to help you with your problem.

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Over the past year, the IRS has run into problems with people not being able to pay their taxes due to a job loss or another problem that has been caused by the down economy. If you find yourself in this position, remember one thing: the IRS is not going to let you go just because the economy has taken a hit. They may realize that many Americans are in trouble, but this doesn’t mean that they will “write off” your taxes and let you off the hook.

But I really can’t pay my taxes. This is the way that many people feel. Being one of them is no fun. Even though you may be in a horrible position, and not knowing when things will get better, you can still stay on the good side of the IRS while paying them what you owe.

The first question to ask yourself is simple: can I pay my tax liability in full in any way, shape, or form? Do you have savings that you can use? Are you expecting severance from your past employer? If you can pay in full you will want to do so because you never know when the economy will take its toll on your finances once again. Unfortunately, most people find that they do not have the money to pay a lump sum and end up searching for another solution.

Your next best option, and the most common, is asking the IRS for a payment plan. What is this, exactly? A payment plan allows you to pay back taxes over the span of several months or years. Instead of paying a lump you can send smaller payments each month that are more affordable. The IRS knows that a lot of Americans are having a difficult time paying taxes, so they are expecting the number of requests for payment plans (installment agreements) to increase.

Don’t want to get involved with a payment plan? There is another option that you can consider. Have you ever thought about taking out a loan to pay back the IRS? With a payment plan this is essentially what you are doing. The IRS is more or less the lender, and they will require that you pay them on time while also charging interest. If you can borrow the money and get a better deal you should consider this. Not only will you be able to save money, but there is a good chance that you can find a lower monthly payment. On top of this, the IRS will get what they want and they will once again put your account in good standing.

The economy is down, and this is hurting many Americans. If you owe the IRS money, but cannot pay because of the negative impacts of the economy, it is important to consider every available option. Remember you can always receive professional tax help from a firm like ours to reduce your load, the possibility of errors with certain forms, and possibly the amount you have to pay the IRS.

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