IRS & State Tax News, Updates, Opinion, Guidance, and More» Payment Plans

What If I Didn’t File My Taxes or Request an Extension to File?

David Mitchell — Tue, 19 Apr 2011 11:18:39 +0000

The April 18th tax deadline has passed and you failed to file your tax return or request an extension. Whatever the cause for not filing your return, you must make a decision regarding your next course of action and quickly to remedy the situation. Do not convince yourself that the IRS will simply overlook the matter, in fact the consequences will only worsen the longer you wait to take action.

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.

IRS Eases Up On Taxpayers Who Owe Taxes or Back Taxes

Manny Davis — Fri, 04 Mar 2011 12:00:07 +0000

Last Thursday, IRS commissioner Doug Shulman announced a new set of initiatives to help taxpayers struggling to pay their taxes or pay off back taxes in this lackluster economy. Sometimes IRS enforcement actions (e.g. tax lien) can bury the taxpayer further which lessens not only their ability to climb out of the hole they are in, but the probability the taxpayer will come into compliance. In other words, sometimes enforcement actions by the IRS decrease the taxpayer’s ability to pay, making it less likely the IRS would collect the tax revenue owed to it. For example, with tax liens, the National Taxpayer Advocate report last month stated how tax liens can be counterproductive in helping taxpayers come into compliance with the IRS as they can worsen a taxpayer’s financial situation.

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.

Why an IRS Payment Plan is Not Always Best If You Owe Taxes

Manny Davis — Thu, 06 Jan 2011 13:00:46 +0000

The option to use an IRS Installment Agreement helps many people pay taxes they owe when they don’t have enough cash available to pay the owed taxes all at once. There are many disadvantages and advantages to using an installment agreement to pay the IRS.

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.

Should You Borrow From a 401K to Pay Taxes You Owe?

Debra Dragon — Fri, 07 May 2010 13:28:17 +0000

Taking money out of a 401K for something other than your retirement isn’t easy, but there are some situations that allow you to access the funds. If you leave a job where you had a 401K plan, you can roll it into an IRA, which gives you different options for accessing the money – but if you’re still with the employer you have two options for using money from a 401K plan to pay taxes owed: a 401K loan or a hardship withdrawal. Hardship withdrawals are expensive and can only be obtained for certain circumstances- such as avoiding a foreclosure of your primary residence or paying medical bills. Loans from your 401K can be used for almost any purpose, but each employer or plan administrator may have it’s own set of guidelines and requirements for borrowing from a 401K plan.

401k Loans

About 82% of 401K plans allow participants to borrow money from their retirement account and pay it back to themselves without penalty. Most loan provisions allow people to borrow up to half of the money, but not more than $50,000. Your loan has to be repaid within five years normally, and the interest you pay on the money borrowed is also repaid to yourself. If using the 401K loan to make a down payment on your primary residence, you can take longer to pay the loan back.

There are no credit checks for 401K loans because you already have the money in your account which becomes the collateral. You make payments on the loan from automatic payroll deduction, usually, which means there is less risk of missing a payment.

Using a 401K loan for repayment of taxes owed may be something to consider if you owe a lot of money in back taxes. The interest rate paid on your 401K loan will be much less than the tax penalties charged by the IRS; not to mention you’re paying yourself back with interest. Borrowing from your 401K loan should only be done as a last resort though, as the whole point of the retirement account is to leave the money there so it can grow tax-free until you are ready to retire. Pulling the money out of your retirement means it is earning less, and you’ll have less when you retire. It also puts you at risk if you lose your job or leave your existing job for something better because the entire balance of the loan will become due immediately if you leave the job. If you are unable to pay the money back, it’s then treated as an early withdrawal of your retirement and you will be hit with early withdrawal penalties of 10%, and income taxes.

Taking money from a 401K loan to pay your taxes owed should only be considered if you plan to remain in your current job for at least as long as the loan repayment term. If you’re young and have the self-discipline to pay the 401K loan back within the loan period, you probably will not damage your entire retirement fund that much by the time you are ready to retire – and the money saved in penalties paid to the IRS for taxes owed could be substantial.

Income Tax Payment Plans for Individuals Who Can’t Pay in Full

Debra Dragon — Tue, 06 Apr 2010 12:58:20 +0000

In an ideal world when it comes time to file your income tax return you would break even or if you are lucky receive a tax return. That is not the case for all individuals and as is often the case a tax bill is due that you are not able to pay in full immediately. This can result in a lot of stress for the person owing the IRS. Fortunately there are options available to individuals who owe taxes but do not have the resources to pay in full. You may qualify for an income tax payment plan if you can prove you have adequate income or assets available to repay your tax bill in monthly installment payments. Filing your tax return is important to avoid late penalties, therefore if you know you are going to owe the IRS but do not have the money to pay immediately, you can fill out an installment agreement form and submit it with your tax return. People owing less than $25,000 generally find it relatively easy to obtain an installment plan agreement. Here we look at some of the options available to you if you are unable to pay your tax bill in full.

Guaranteed Installment Agreement

The most common type of installment agreement (IA), the Guaranteed IA is ideal for taxpayers who owe less than $10,000. To qualify you must have filed and paid any taxes due on time in the past five years and not have any current IA’s with the IRS. You must agree to pay the balance within three years and not have filed bankruptcy or have any other payment arrangement made with the IRS. The process includes completing Form 9465 and calculating a monthly payment by dividing the amount owed including interest and penalties and dividing that amount by 30 months. You then sign and date the application (if not filing online) and submit to the appropriate IRS address. Include any fees applicable with your application.

Streamlined Installment Agreement

This IA is used by individuals who owe more than $10,000 but less than $25,000. The qualifications are the same as listed in the Guaranteed IA with the only difference being the amount owed and the length of time needed to repay the tax bill. The Streamlines IA allows for 5 years versus 3 to repay the balance. The process is similar to that of the Guaranteed IA except you will determine you monthly payment based on 50 months versus 30 months.

Partial Payment Installment Agreement

The Partial Payment IA (PPIA) is an option for individuals who reach an agreement with the IRS to repay only part of the tax bill owed. If you are unable to meet the requirements necessary to repay the tax bill in full, the IRS may agree to a PPIA. If you make the required payments per the agreement, the IRS will not pursue collection efforts. They will however ask to see your financial records every two years to determine if you should pay more or terminate the agreement. You must complete and submit Forms 9465 and 433-A when applying for a PPIA. Include with these forms a letter requesting the PPIA as well as 3 months of income and expense documentation.

The summary information provided here can give you an idea of what options are available to you when you face a tax bill that you are unable to pay in full. It is recommended whenever you owe the IRS and wish to apply for an installment agreement, that you consult a tax professional. A person with the experience and training in tax laws can help you avoid making mistakes that could end up costing you more money in the long run.

Why You Should Not Put Taxes on a Credit Card

Manny Davis — Tue, 19 Jan 2010 13:09:50 +0000

When you finish filing your tax return you may find that you owe the IRS money. If you then find out that you cannot pay these taxes in full, this is not a good position, but all in all, one that you can work with. Of course, you need to pay your debt sooner rather than later. There are many ways to pay what you owe, and you should definitely consider all of them.

The IRS may tell you that it is best to put tax debt on a credit card as opposed to opting for a payment plan. While this may sound like a great idea, you do not want to jump the gun and listen to everything you hear.

There are a few reasons why it is not a good idea to put tax debt on a credit card. They include:

A higher interest rate than what the IRS offers. When you put your debt on a credit card you will probably pay more in interest than you would if you were to apply for an installment agreement. This is definitely true if you have bad credit and your interest rate is 15 percent or more. The IRS wants you to put the debt on your credit card so they get paid. Although it may benefit them, it does nothing good for you.
Once you move your debt to a credit card there is no way to settle with the IRS. Simply put, this debt is now on your shoulders and the IRS does not care what you do. As noted above, they push people towards credit cards because they get what they, the money. Before you decide on any option, no matter what it may be, you may want to attempt to settle your debt with the IRS. Remember, the moment that you pay with a credit card your chance for settling goes out the window. Do you really want to give up this right just so you can pay a high interest rate?
Service fees. The companies that accept credit card payments on behalf of the IRS, such as Link2Gov, are going to hit you with a service fee of 1.95 percent or more. And yes, this is on top of the interest that you will pay to your credit card company. “Paying your taxes with a credit card involves a relatively high fee between 1.95% – 3.93%. As a result, consumers should use a credit card only when they truly lack the money to pay their taxes in full and not for rewards or any other reason,” said Odysseas Papadimitriou, CEO of CardHub.com, a leading credit card comparison website.

These three details should show you why it is best to avoid paying your tax debt with a credit card. Although the IRS may suggest this, it is probably not in your best interest.

If you need help finding the best way to pay the IRS taxes you owe we can help. One service we offer is IRS payment plan help. We will analyze your financial situation and find the best solution that fits your needs, not the wants of the IRS.

3 Common Tax Relief Methods if You Can’t Pay Your Taxes

Manny Davis — Mon, 14 Dec 2009 12:42:48 +0000

When you can’t pay your taxes on time or in full you have various options available to you. This year, more than ever, taxpayers are receiving tax bills that they are unable to pay. The IRS is well aware that there are situations that arise that will make it difficult for everyone to comply with their tax obligations. For this reason the IRS has created various methods that are available to the taxpayers to pay back the taxes they owe without causing severe financial strain.

The IRS is pretty particular as to what methods they allow certain people qualify for. There are some methods that just about anyone can qualify for and then there are methods that you need to prove your financial situation through various complex form filings and detailed financial statements. Below are three common methods used by individuals that do not have enough money to pay the IRS in full for the taxes they owe.

Installment Agreement: An installment agreement is the most common method used by taxpayers to pay back their taxes when they cannot pay in full. An installment agreement is fairly easy to qualify for and does not require a very detailed filing like other methods. An installment agreement allows the taxpayer to pay back the taxes they owe in monthly increments until the balance is paid off. There are various forms of installment agreements and the one you use is dependent upon how much you owe in taxes. If you owe under $10,000 and can pay off the amount in a period less than 3 then a guaranteed installment agreement should be used. If you owe less than $25,000 in taxes and can pay off the entire tax balance in a period of less than 5 years then it is best to file for a streamlined installment agreement. If you owe over $25,000 in taxes you will be required to file for a financially verified installment agreement which requires a bit more paper work to show you will financially be able to make the minimum payments required.
IRS Financial Hardship: If your financial situation is to the point where you cannot pay your taxes and you can’t even make the minimum payments required with an installment agreement then proving financial hardship to the IRS could be an option. When someone proves financial hardship they are declared temporarily uncollectible. When they receive this status the IRS does not pursue collections on the individual for a time being. This is only a temporary tax relief method but it does allow the taxpayer some time, often years, to try to improve their financial situation. When one’s financial situation has been improved enough then the IRS will require the taxpayer to pay back the taxes they owe.
Offer in Compromise: If your financial situation is to the point where you cannot pay your taxes owed and don’t think you will ever be able to pay the taxes owed then an offer in compromise may be for you. With an offer in compromise the taxes owed can be negotiated for less. The amount that they are negotiated for should be equal to or greater than the amount the IRS would ever expect to collect from you, even through forced collection mechanisms. This is a very detailed filing with a low acceptance rate. It is suggested that you hire a tax professional to help you with this kind of filing if you feel you meet the requirements.

If you know you will not be able to pay your taxes it is a good idea to work with the IRS as soon as possible on order to come up with a resolution. If you do not put in place a resolution you will be charged with various penalties and interest after the due date for taxes. If you are unsure of what resolution method to use it is a good idea to talk with a tax relief professional.

Former NBA Star Robert Traylor Owes $178K in Back Taxes

Manny Davis — Thu, 17 Sep 2009 23:31:54 +0000

Former NBA star Robert Traylor has about 13 days to set up a payment plan with the IRS for the $178,000 dollars that he owes or he could go to jail for 60 days, according to The Boston Herald. US District Judge Avern Cohn stated that if he doesn’t set up the payment plan (most likely an Installment Agreement) within two weeks, he will be sent to jail.

Traylor, who has been playing basketball outside the country, stated that he fell behind in making payments.

Tax Services: Use a Large, Nationwide Firm or Small Local Firm?

Manny Davis — Tue, 01 Sep 2009 23:36:59 +0000

If you have tax problems and are looking for professional help it is important to find a reliable tax company to help. There are many companies out there that can help, large and small. Both large and small companies have their benefits. Depending on what you are looking for in a tax company and what your tax situation is should determine what type of company you should use.

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:

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.

Paying Back Taxes Owed in a Down Economy

Manny Davis — Sun, 12 Jul 2009 06:21:33 +0000

As you know, the economy is affecting millions of people in a number of different ways. Some are losing their homes, others are losing their jobs, and many are finding it difficult to pay the taxes that they owe the IRS.

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.