IRS Tax Problem Help

Every week someone calls me and tells me they owe the IRS, but do not have the money to pay the back tax.  Many of them are frustrated because the IRS notices keep coming and they feel threatened.  They want to pay their tax, but they are not able.  Does that sound familiar?

There are 6 main options available if you owe the IRS.

1. The first option is to full pay the tax.  Most people do not have the money sitting around in their checking account.  Do you?  Some other options if you do not have the money sitting in your checking account or in your mattress are as follows:  Refinance your home.  If the IRS has filed a lien on you, they will release the lien to get paid on a refinance or sale of a home.  Look around your home do you have a car, boat, motorcycle, 4 wheeler or other play-toy you can sell and payoff the IRS?
2. Pay the IRS back with an installment agreement is the second option.  Many times the IRS will work with you to set up an installment agreement if it will help them get paid.  Most people are not aware the IRS will allow an installment agreement.
3. If the money you are making is just enough to pay your basic living expenses (based upon the IRS standards) and your current year taxes, the IRS will set you up as “Currently Not Collectable”.  This is not a miracle!  The taxes do not go away, and penalties and interest continue to accrue.  However, if you truly cannot make payments, this gets the IRS off your back, and lets you go on with your life.  The IRS is not going to require you to make payments at this time.  However, they may come back later and ask you to update your financial information, so they can determine if you are still not collectable.
4. Offer in Compromise – This is the program where the IRS will settle your IRS tax debt for pennies on the dollar, if you qualify under the IRS standards.  Beware, a lot of companies promise to help you settle with the IRS for pennies on the dollar, if you pay their fee.  Many times they do not ask enough questions to find out if you qualify for an offer in compromise.  The IRS requires you to give them detailed financial information to determine what is your ability to pay them.  This process is very detailed and can take up to a year or longer for the IRS to make a decision.
5. In some circumstances IRS income taxes can be discharged in Bankruptcy.  Many people are surprised to find out taxes can be discharged in bankruptcy.  To find out if your situation qualifies for Bankruptcy, you need to consult with a qualified Bankruptcy Attorney.
6. The IRS does not have forever to collect back taxes.  Many people believe once they owe the IRS if they do not pay the tax, it will follow them until they die.  The Statute of Limitation for collections of the IRS debt is 10 years.  If the IRS does not collect the tax within 10 years, they lose it. Some actions can extend the 10-year period of collection.  The filing of an Appeal or Offer in Compromise will extend the collection period.  Filing Bankruptcy will also extend the collection period.

In future post I will discuss each option in more detail.

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Did you forget to get an extension for your IRS income tax return?  Are you in a panic?  What should you do?

The first thing to do is calm down.  This is not life or death.  The next thing to do is either prepare your tax return or hire someone to help you prepare your tax return.  What is the next step after you prepare the tax return?

If you have a refund there is no problem.  The IRS does not penalize you if you file late and have a refund.  The penalties and interest due on an income tax return are based on the amount owed.  If you do not owe any income tax there is no penalty or interest due.

Now you have prepared your income tax return and you owe income tax, what next?  The IRS assesses a penalty for filing a tax return late.  The penalty is 5% per month, or any part of a month (even 1 day).  The maximum amount of the penalty for late filing is 25%.

How do we stop the late filing penalty?  File the return as soon as possible.  If you file the return before May 15^th, you will only be subject to a 5% late filing penalty.  If you cannot get the return filed by May15th, file it as soon as possible after May 15^th.  But what if I am missing a piece of information needed to file my return?  Use your best estimate of the missing piece to prepare the return.  Once you know the correct amount, file an amended return if it is materially incorrect.

Can I get the late filing penalty removed?  It is possible to get the late filing penalty removed if you have what is called reasonable cause.  Reasonable cause is a reason beyond your control that kept you from filing a timely return.  Some possible reasons could be: you became ill the week the return was due, you were suddenly called out of town for work, you could be going through a messy divorce.  You will have a better chance of convince the IRS of waiving the late filing penalty if you can show you have a long standing record of timely filing and paying your taxes.  They are much more likely to waive the penalty for someone who has been in compliance in the past, rather than someone who habitually files late.

What should you do?  Stay calm, prepare the return, file the return and ask for a waiver of the penalty, if you have reasonable cause.

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