The Internal Revenue Service has begun sending out bills to those taxpayers who filed on time for 2018 but have not paid in full. Because of recent law changes affecting most taxpayers, more taxpayers are finding that they owe money to the government this year. Regardless of the amount, owing money to the IRS can be scary. But ignoring the IRS can have severe consequences, including the filing of tax liens and/or levies. As previous blogs indicated if you find yourself owing money to the IRS, addressing the issue early can avoid bigger problems down the road.
Options for RESOLVING Your Tax Bill
There are many options available to resolve your tax balance with the IRS. Knowing which one of the options apply to you can result in a more expedient and more favorable resolution of your account.
1. Installment agreements. User fees will apply to setting up installment agreements, which will vary depending on whether the agreement is set up online or over the phone. In addition, fees can be reduced if you are setting up a direct debit agreement.
a. Full payment installment agreements. Depending on the amount you owe, there are options available to you if you will full pay the liability within the repayment period.
i. Debts less than $25,000. Can go up to 72 months. Financial information generally not required. Direct debit agreement generally not required. May be able to avoid a tax lien filing
ii. Streamlined criteria for debts $25,000 - $50,000. Can go up to 72 months. Financial information may be required. Direct debit agreement required to potentially avoid a tax lien filing.
iii. Expanded streamlined criteria for debts $50,000 - $100,000. Can go up to 84 months. Financial information may be required. Lien determination will be made. NOTE – THESE ARE TEST CRITERIA AND CAN BE DISCONTINUED AT ANY TIME.
b. Partial payment installment agreements. This type of agreement is based on current ability to pay and requires submission of your financial information. In addition, these types of agreements may result in a tax lien filing and are generally subject to review after 24 months.
2. Short-term extension of time to pay in full. The IRS will generally allow up to 120 days to pay the liability, plus the accrual of penalties and interest in full. There is no fee for setting up this arrangement and no lien determination is made.
3. Hardship statuses. If you are experiencing a hardship, you may qualify for currently not collectible (CNC) status or an offer-in-compromise (OIC) to resolve your balance. Lien determinations will be made for both of these options. There is no fee for CNC status but financial information is required. There is an application fee and a down payment requirement for an OIC. Financial information is required to determine your reasonable collection potential for an OIC.
Options for REDUCING Your Tax Bill
Besides the opportunity for an offer-in-compromise (see hardship statuses above), penalty abatement provisions may apply to reduce your tax bill. There are three main avenues to obtain penalty abatement or waiver.
1. First-time penalty abatement. If the following are true, you may qualify for administrative penalty relief from penalties for failure to timely file, failure to timely pay or failure to deposit taxes:
a. You didn’t previously have to file a return or you had no penalties assessed against you for the previous three (3) filing years.
b. You are current in your filing requirements or you have filed an extension of time to file for the current year.
c. You have paid, or have arranged to pay, any tax due.
2. Penalty abatement due to reasonable cause. The failure to timely file and/or failure to timely pay penalties can be abated if you can establish that there was reasonable cause for your failure to file or pay on time. Reasons for abatement can include:
a. Casualty, fire, natural disaster or other disturbance
b. Inability to obtain records;
c. Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family;
d. Any other reason which establishes that you used all ordinary business care and prudence to meet your tax filing and payment obligations but were nevertheless unable to do so.
NOTE - All of the options above require documentation to support the reason for abatement. In addition, lack of funds in and of itself is not reasonable cause for failure to file or pay on time. However, the reason for the lack of funds may meet reasonable cause criteria for the failure to timely pay the penalty.
NOTE - All of the options above require documentation to support the reason for abatement. In addition, lack of funds in and of itself is not reasonable cause for failure to file or pay on time. However, the reason for the lack of funds may meet reasonable cause criteria for the failure to timely pay the penalty.
3. Penalty relief due to statutory exception. If you received incorrect written advice from the IRS, you may qualify for penalty relief under a statutory exception. In addition, there are other specific statutory exceptions in the penalty provisions of the Internal Revenue Code. You should consult with an experienced tax attorney to see if any of the statutory exceptions apply to the facts of your case.
If you have a balance due with the IRS for 2018 or for any other year(s), you should speak with a tax attorney to evaluate your financial situation, the collection alternatives that may be available to you and your options for reducing the tax debt you owe.
