Paying your taxes on time is mandatory if you want to be stress-free. Falling behind on your income tax payments, on the other hand, can get you in major trouble with the IRS. It means that you owe them money and they will not let you go unless you pay off the debt. Moreover, you will also have to pay penalties and interest on the debt, which makes things even worse. And the longer you delay, the more complicated the situation becomes.
Fortunately, there are some options that the IRS gives to taxpayers who owe taxes but can’t pay them off immediately. You can probably get a deal if you had no wrong intentions such as cheating or evading your taxes, to begin with. If you want to settle your tax debt but don’t have resources to pay it off in one shot, here are some options you can explore.
As the name suggests, an installment agreement with the IRS lets you pay up your debts in easy installments. The IRS will allow you this option only if you fulfill the following requirements:
- You have filed your tax returns in time
- You have mostly paid your state income taxes and late fees
- You are in a position to make the minimum monthly payments required by the IRS
Though the authorities would want their debt to be repaid, they would not be interested in entering into an agreement with someone who would not be able to pay the monthly installments subsequently. Also, they will not give you this option if you have more than $50,000 in arrears. Conversely, they will arrive at an agreed monthly installment amount if you qualify the criteria. Consulting a tax resolution specialist or a tax attorney is a good idea if you want to settle a plan that is feasible for you.
Offer in compromise
In case you are not in a position to repay the entire amount that you owe to the IRS, you can seek an offer in compromise with them. It refers to the settlement which allows you to pay an amount lesser than your actual liability. For getting a compromise, you need to convince them that you will be unable to repay the entire amount due but will pay at least an agreed part. Also, you can offer to pay it in one shot or as short-term installments, whichever works for both the parties.
Getting an offer in compromise is much tougher than it sounds and you should have a professional negotiating on your behalf. There is much that it involves, from filling forms, submitting documents and negotiating with the officers. Look for dependable tax attorneys who return calls promptly and have the right expertise and experience as well. This is important because only a seasoned lawyer can convince the authorities that you deserve some leniency and will definitely repay if given a chance.
Partial payment installments agreement
With this option, you pay back your debts to the IRS in the form of monthly payments just like an installment agreement. At the same time, you repay less than what is due. Though it may be easier to convince the authorities for this option as compared to the offer in compromise, this may or may not be a permanent solution. They have the authority to re-evaluate the terms of such an agreement every two years.
If the IRS believes that the taxpayer can comfortably afford to make bigger payments subsequently, they might renegotiate the agreement. The taxpayer has the option to request revaluation of the agreement anytime in the future if they cannot repay under the same terms and conditions owing to a change in their circumstances.
Innocent spouse program
This option applies for a taxpayer who is wrongly implicated because of the fault of their spouse. If you file your tax return jointly with your spouse, you may be considered individually responsible for an underpayment even if you are legally separated from the spouse. But the IRS provides some relief to married or separated couples if one of them conceals a tax liability from the other. To claim the innocent spouse relief, you need to prove that your spouse did not report income, took illegitimate deductions or availed credits that were not permitted.
Even though working out a settlement with the IRS can be tough, it is better than not paying at all. After all, you would not want to get implicated in any legal or criminal hassles. A professional tax attorney can help you understand the best option and also negotiate with the IRS to get it implemented for you.