When it comes to owing the IRS taxes, if you cannot afford to pay, you will typically be forced by the IRS to pay the total amount you owe plus additional late penalties and interest on those taxes. Even if you enter into an installment agreement with the IRS they will still charge you additional interest, therefore you end up paying more taxes than you owed in the first place. There are actually ways to negotiate taxes to a lower amount that you need to pay with the IRS.
- Penalty Abatement – Under this method you can negotiate to eliminate penalties that have been incurred on taxes owed. Basically what you need to do is show proof to the IRS that you had a legitimate reason for not filing or not paying your taxes on time and they will eliminate all or most of the penalties you owe.
- Partial Payment Installment Agreement – Under this method the IRS allows you to pay monthly installments of taxes owed that end up being less than the total amount owed. The IRS rarely accepts this form of agreement, but they will consider it if you are in poor financial shape and if they were to make you pay the entire amount owed it would not leave enough for basic necessities.
- Offer in Compromise – This is the method that can eliminate the majority of taxes owed. If you have ever heard of settling for pennies on the dollar, this is how it is done. This method is not easy to obtain and requires a lot of paper work. In the paper work you must prove to the IRS that your financial situation is so bad that they are better off taking your negotiated tax amount that you offer than having them force you to pay.
This post was published on May 7, 2009