If you owe back taxes to the IRS, you’re not automatically going to jail, so don’t fret. If you can’t pay the full amount, don’t panic about this, either. There are many different debt settlement options for you. Yes, you can get a settlement on your taxes just like you can with any other type of unsecured debt.
Now, there are many options for a final payment plan, but the setup to the plan of action is the same with everyone. You will receive a letter from the IRS outlining the amount of debt you owe, along with penalty fees and interest. After you get this, you need to look at your personal budget to see what you have and what you are spending. You should also gather all your pay stubs from the past few months to gauge how much of the debt you can pay.
If you pay it in full, then congratulations! Just fill out a check and send it to the IRS. But chances are you might have trouble paying the full amount, especially with penalties and interest added. You’re going to have to call the IRS and try to get the amount reduced. Keep track of all the information about the call, such as the date, IRS agent’s name, personal identification number (this is something you will get on the first call), and also the agent’s phone number if you need to make later calls. If you call the general phone number listed for the IRS, you could be put on hold for a while, so getting the specific agent’s number may prevent unnecessary waiting for future calls.
Then, like any debt settlement, you will explain your financial situation, and some solutions will be offered. The most common payment plan is an installment agreement, where you simply make a monthly payment each month over the course of three to five years. As long as you make the minimum payment each month and your payments are on time, you will not be penalized with any more fees. If you can’t pay the penalty, you can apply for a penalty abatement. Some of the reasons you might opt for this include undergoing divorce, illness, or unemployment, some financial hardship that prevented you from paying your taxes. If you choose this option, you will have to fill out IRS Form 843 and you will be expected to pay your tax liability in full.
If you can prove financial hardship, you might be able to get the debt declared uncollectable. This will be difficult if you don’t keep track of your financial transactions, and you need to show that you are spending below the “national average” on food, services, and other items to qualify. One final option, though risky, deals with the statute of limitations. The most common rule is that after 10 years, the debt is uncollectible. However, if the IRS does not assess taxes within a three year period of the tax return being filed, the taxes cannot be collected unless you filed a fraudulent tax form or you understated the amount owed by 25% or more. This situation is highly unlikely, however. Personally, I might stick with a monthly payment plan. It’s a simple structured plan to remember. But, there are many options for you if you need to make a settlement with the IRS.
Note: Be careful when dealing with any company that claims extraordinary results if you hire them to help with tax bills.
He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.
Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.
In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
- FAFSA Day is Fourth Saturday in February - February 7, 2015
- Best way to shop for Christmas - November 9, 2014
- The rules for personal bad debt write-offs - November 5, 2014