So you received that notice from the IRS that says you owe money based on the tax return you recently filed. Nothing new. You knew that when you filed the return but you did not have the money to pay the bill. This is a situation many people face, so you are not alone. Many people get caught up in the day-to-day activity and unfortunately don’t plan for taxes among other expenses or emergencies in their business or personal lives. But don’t fret, it is not the end of the world. Generally when you receive the first notice you have 30 days to pay it or contact the IRS for a plan. But don’t keep ignoring the issue. Eventually the IRS can and will levy either your bank account or wages. Remember, Big Brother is watching and they have the ability to access these sources.
Normally, most tax preparers say you don’t want to have the IRS as a creditor, but for some people it is the only option. So if you possibly have another source where you can get the funds, go there first. But if that is not an option, you need to call the IRS to setup a payment plan. It is called an Installment Agreement or IA for short.
There are a few options available to setup an IA. If the balance due (not including penalties and interest) is less than $10,000 and you can pay the balance off in 3 years, you qualify for the Guaranteed IA. This can be done by going online to the Online Payment Agreement section at www.irs.gov and inputting the information so that your payment will pay off the balance within 3 years or you can file Form 9465 with your tax return or file it separately. The biggest benefit under many of the IA options below is that you do not have to file financial information with the IRS in order to make payments under these programs.
But keep in mind a few things for these programs:
- Late payment penalties and interest still run on the outstanding balance until the tax is paid off
- You cannot have any other unfiled tax returns for previous years
- There is a setup fee of $52 for direct debit of your payment or $120 for manual payments
- Make sure you make all payments on time and file all future tax returns timely
- Over the last 5 years you (and your spouse, if applicable) have filed and paid all of your taxes on time
- Finally, you cannot be in Bankruptcy or had a previous Offer-In-Compromise (OIC) accepted
If you do not qualify for the Guaranteed IA, then you may qualify for the Streamline IA. The big difference here is that you have to owe less than $50,000 (not including penalties and interest). But all other requirements for the Guaranteed IA listed above apply to this program.
Now, what do you do if you owe over $50,000? Well, all of the above rules apply, but you have to file Financial Information with the IRS before they will allow you to enter into an IA program. You file this by filing one of the versions of Form 433 and possibly sending additional documentation showing the income and/or expenses.
For businesses, if you owe less than $50,000 in payroll taxes, corporate income taxes or penalties (such as late filing for S-corp or partnership), you can apply for Streamlined IA and setup a payment plan using the Online Payment Agreement. If you owe more than $50,000, then you have to file financial information for the IRS to determine the minimum payment that you can make to pay the balance in full within 72 months or before the end of the collection statute of limitations (which is 10 years from the date the liability was established).
I usually don’t recommend doing most of these options without the help of a professional as the IRS is not obligated to tell you the option that is most beneficial to you. They go for the option that is most beneficial to the government. This is the biggest mistake you could make.
For more information, please go to https://danhenncpa.leadpages.co/special-rpt-how-2-end-irs-problems/ to get my special report on “How to End My IRS Problems!”. You owe it to your family to read this FREE special report
Daniel Henn, CPA is a local certified public accountant. His firm specializes in IRS Collections Representation, IRS Audit representation, year-round tax planning and tax preparation in Rockledge. You can contact him at (321) 684-7800 or at email@example.com