You have prepared your tax return and you get to the bottom line. You owe taxes and you don’t have the money to pay. What should you do? First and most important, don’t panic. Sometimes people cannot pay their taxes due to some financial hardship. This situation can be an extremely stressful and frightening position to be in. However, there are different payment options available to you in the event that you cannot immediately pay your taxes in a single payment. These options include making a short-term delay in payment, paying in installments, making an “offer in compromise” (OIC), and requesting a “currently not collectible” status (CNC).
Determining which option best suits your needs depends on how much money you owe, and how much you can afford to pay now. That is why it is crucial to be proactive about repaying your tax liability to avoid having the IRS take action to collect the tax debt. This article discusses the different repayment options below.
Short-Term Delay in Payment
Sometimes recent, large expenses can make immediate tax payment impossible, but you know that you will have enough funds to pay later. In that case, the IRS will give you up to 120 days to pay your tax obligation in full. There is no application process or fees because delayed payment is not a formal repayment option. However, interest and penalties will continue accruing until the IRS receives full payment of your tax liability.
The IRS may also accept payment plans that divides repayment into periodic installments over time.
The following are the type of installment agreements that the IRS recognizes:
- Guaranteed Installment Agreements. These agreements are for tax obligations under $10,000 that are payable within 3 years and do not require filing a financial statement.
- Streamlined Installment Agreements. This type of agreement requires you to repay the obligation within 72 months (6 years) without submitting a financial statement.
- Partial Pay Agreements. If you can pay only part of your taxes within the time the IRS has to collect, you may make installment payments until the collection period expires.
- In-Business Trust Fund Express Agreements. If your business owes taxes of up to $28,000, you may make installment payments within the earliest of 24 months, or before the collection period expires.
- Routine Installment Agreements. If you don’t qualify for any of the above installment agreements, you may request a routine installments agreement from the IRS by mail. This option is not available online. A routine installment agreement may require documentation of your financial information.
Offer in Compromise
An OIC allows you to settle your tax debt for a lower amount under certain circumstances. In general, the IRS will accept an offer in compromise if you can show that it is not possible under your current and future circumstances to pay the entire amount a lesser amount is possible. For more information, check out our previous blog on OICs.
Not Collectible Status
If the IRS agrees that you are unable to pay your taxes while paying your reasonable living expenses, your account will be placed in “Currently Not Collectible” (CNC) status, which means that the IRS will not attempt to collect taxes from you until your CNC status is removed. While CNC status is in effect, the IRS will generally not attempt to levy your assets or income. However, the IRS will still assess interest and penalties and even keep any subsequent refunds to pay off your prior tax obligation.
To request CNC status, you may need to provide financial information about your income, expenses, and potential assets you can sell or use as collateral for a loan.
Contact Our Office Today for Tax Resolution Services
If you need help resolving your tax issues, you should contact an Oakland County tax resolution specialist to assist you. At TaxResolve, we have experience working with our clients to solve their issues. We provide personalized tax resolution services to evaluate your individual circumstances and reach an effective resolution to your tax problem.
For more information about your tax resolution options, call TaxResolve at (248) 919-8029 or contact us online today!