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IRS Payment Options if you are Unable to Pay Taxes Due

September 2, 2011 By

If you find yourself in a situation where you are unable to meet your due taxes before the tax deadline, do not despair. There are available options that you can take advantage of to ensure that you do not agitate Uncle Sam. Here is what to do if you find yourself in such a situation:

File a Tax Return

Ensure that you file a tax return, even if you are unable to pay off the due taxes immediately. There are worse consequences if you do not file the return. Not filing amounts to more tax troubles and may even surmount to criminal implications.

Consider Various Options for Paying your Due Taxes

Once you have filed your tax returns, you need to plan on how you will pay the taxes due. Depending on the amount of taxes that are owed, you may consider the following options for delayed payments:

  • Request for Short Delay – If you will have the funds to pay the taxes within 120 days, then you may call the toll-free IRS number and request for a short delay. The IRS customer service representatives handling such issues are permitted to make an interest and penalty free extension of up to 120 days if you provide a good reason for the delay.
  • Installment Agreement – If the amount you owe is below $25,000.00 and you are not able to pay it all in one lump-sum, you can apply for an installment agreement under the Online Payment Agreement service available on the IRS website. You can also call the toll-free IRS number to set up this installment agreement. The installment agreement is automatic for any taxpayer who owes below $25,000.00 and you can determine the installments to pay as long as you will repay within the required period. This installment agreement also has an extra advantage – you will not be requested to provide financial statements or any further paperwork. However, you will need to pay interest on the taxes due and late payment penalties. The interest rate for tax debt to the IRS is currently at 4% and is subject to change every three months. The late fee is currently 0.25% for Installment Agreements and 0.5% for tax debts outside IRS payment agreements.
  • Consider Borrowing – You can also consider taking a loan to clear your due taxes. However, you will need to compare the amount to pay if you took up a loan against making late payments through installments. Depending on your loan terms, you can check if the loan interest will amount to more than what the IRS will charge in interest and lateness fees. If the loan interest rate is less than that of the IRS’s deal, then it would be advisable to take the loan and pay off your taxes. However, if it is cheaper to take the IRS Installment Agreement, you should not be hesitant as there is no recourse to taking the agreement.
  • Prioritize Between State and Federal Taxes – If you owe both Federal taxes and State taxes, you should also do a comparison of the charges to be levied if you are late on either of the taxes. You can then pay off the taxes that bear more charges in interest and late fees and place an installment agreement with the tax authority with lower charges.
  • Seek Professional Help – If you owe over $25,000.00 or are still unsure about how to handle your tax dilemma, you may consider seeking help from a tax professional on what to do regarding which option to select.

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IRS Help Regarding Your Foreign Account

August 4, 2011 By

The IRS has over the recent past, cracked down on taxpayers who have been defaulting on payment of taxes against foreign incomes. Unremitting taxes from foreign incomes is one of the leading contributors to the tax gap and the IRS has earmarked this tax source as an area of focus, especially in the wake of the tremendous government deficit. Taxpayers with foreign accounts and those that make foreign incomes can no longer take payment of taxes for granted. The IRS has made major headway through partnerships with other governments, seeking disclosure from foreign banks to get to taxpayers who have defaulted in paying their taxes on foreign incomes. They have also come up with various initiatives and procedures that are targeted at getting more taxpayers to pay taxes against these incomes. Some of these recent moves by the IRS on tracking down foreign income earners are:

Form 1040 Disclosure

In the 2010 tax return form 1040 at Section B, the IRS included a question that required the taxpayer to reveal whether he or she had a foreign account. Many taxpayers ignored this yes/no question while others checked the “No” option, though they did indeed had foreign accounts. However, answering this question falsely or ignoring it means that you willfully withheld or misrepresented the truth and therefore, exposes you to further liabilities. Even taxpayers that checked the “Yes” option are still required to pay taxes on foreign incomes earned and file the treasury disclosure form (if their accounts meet the minimum disclosure threshold).

IRS 2011 Offshore Voluntary Disclosure Initiative (OVDI)

In 2011, the IRS also provided an amnesty program to foreign account holders who had not complied to the legal disclosure requirement to do so with reduced consequences and no criminal recourse. The amnesty program provided an opportunity for the taxpayer to come clean by paying due taxes and interests accrued and paying a final penalty of a percentage of the highest account balance since 2001. This amnesty lapses on August 31st, 2011, except for those that applied and qualified for an extension to November 30th, 2011. The IRS says that this is a last amnesty opportunity for any defaulter to come clean without facing the full legal consequences.

Opting Out

The IRS has also provided an opportunity for taxpayers who have already signed into the 2011 OVDI to opt out of the initiative and face the regular consequences of their non disclosure. This option has been provided to enable taxpayers who may be at a disadvantage through the initiate to opt in for paying penalties under the regular requirements. However, since those opting out will have already joined the initiative and provided the IRS with information about their foreign accounts, they will be obviously more vulnerable to an IRS audit and back-tax bills.

Treasury Disclosure Form TD F 90-22.1 Update

Taxpayers who have foreign accounts (including bank accounts, stockbroker accounts, annuity accounts, and other fund and investment accounts) are expected to file Form TD F 90-22.1 “Report of Foreign Bank and Financial Accounts” (FBAR) form by June 30th of every year for the previous financial year. In 2011, this form was adjusted to allow for more disclosure as the IRS seeks more information to seal any possible tax loopholes.

Quiet Disclosure

Some taxpayers are opting to start filing FBAR forms to fully disclose and pay past foreign income taxes without alerting the IRS of their former non-disclosure and default; they are also not taking up the OVDI amnesty program. They are doing so in the hope that the IRS will not catch up with them within the 3 year statutes of limitations and therefore, forgo any penalty payments or other legal recourse. This is being referred to as a “quiet disclosure.” The IRS has warned against quiet disclosures and has stated that any taxpayer who opts for quiet disclosure is in essence, willfully violating the law.

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Tax Relief or Burden? The Pros and Cons of Stimulus Packages

June 23, 2011 By

Every time a recession looms or the economy starts to slow down, the government seeks to restore the economy through different stimulus plans. The recession of 2008 was one such case. When the mortgage crunch hit the economy, causing widespread panic with the sudden financial plunge, the government took immediate measure to stimulate the economy back to norm and to restore confidence in the economic market. President Bush signed the Economic Stimulus Act of 2008 that awarded low and middle income earning taxpayers with a stimulus rebate check of $300.00 for qualifying children and $600.00 for adults. Any qualifying taxpayer who did not receive the stimulus check was allowed to offset the stimulus amount against any outstanding tax liabilities.

The intent of the stimulus check was to induce spending into the economy in a hope of reviving it. Since the low and middle class income earners were expected to spend such funds received on goods and services, economists projected that they were the best bet to jump start a stalled economy. Increased spending would mean increase in demand, which would bring growth to manufacturing and create jobs by extension. However, the expected impact of the stimulus checks did not result in significant economic growth but instead, produced a $165.9 billion government deficit.

There were mixed reactions and proposals as to how to resolve the new crisis that had been created (the problem of the resulting deficit). The economy was slowing down again and the government had to take action again and fast. Ben Bernanke, the Chairman of the Federal Reserve advised that a second stimulus plan could be appropriate to keep the economy in momentum. However, lawmakers were divided on the stimulus plan with others suggested tax cuts instead.

Eventually, there was no second stimulus check in 2008, as anticipated by many. When the Obama Administration took over the White House, they set out various stimulus programs under the American Recovery and Reinvestment Act (ARRA) of 2009. Under the stimulus package, the recipients of the stimulus checks were retired citizens and disabled persons, who received $250.00. Besides the rebate checks to these qualifying group of people, the ARRA opted for tax breaks for the rest of the taxpayers. The Making Work Pay Tax Credit was extended to low and middle income earners, which provided some tax relief. Qualifying individuals received a credit of $400.00 and married couples that filed jointly received a credit of $800.00. The credit that was set to last through 2009 and 2010 lapsed and was replaced by the 2010 Payroll Tax Credit.

Under the Payroll Tax Credit, Social Security tax was reduced from 6.2% to 4.2% with a cap of $106,800.00. Besides the introduction of the Payroll Tax Credit, Congress decided to extend the Bush tax cuts that were set to lapse in 2010 for two more years (until 2012).

However, in May 2011, a report on jobs and unemployment showed that economic progress was not approaching as expected. Recent reports also indicate that the manufacturing sector is declining and the May 2011 Federal Reserve Report also gives discouraging numbers. There are high expectations for the government to come up with extra stimulus packages, including another stimulus check distribution plan, to try and revive the economy further. However, the anticipation of a stimulus package is now challenged by the government deficit. For now, economists, tax experts, and the public at large can only wait and see what remedy the government will put in place to try and resolve the situation.

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Tax Relief Options: Offer in Compromise and Installment Agreements

June 21, 2011 By

An Offer in Compromise

An Offer in Compromise (OIC) is a negotiated deal that the IRS gives to a taxpayer who has an outstanding tax liability and is unable to pay it off for one reason or another. The Offer reduces the tax liability of the taxpayer depending on his or her ability to pay and reduces the tax debt to as little as 1% of the taxes owed. OIC is given at the discretion of the IRS and is not a right of any taxpayer. To qualify for an OIC, you need to have made full disclosure and correct submission of your tax returns. The chances of winning an OIC are low (below 50% of applications). According to the IRS, there are three reasons that can qualify a taxpayer for an Offer in Compromise.

  • Doubts on Tax Collectability – The first condition that can grant a taxpayer an OIC is if there are doubts as to whether the IRS can successfully collect the tax debt from the taxpayer within the time frame allowed by the law. To qualify, the taxpayer needs to have no assets that they can cash out and their monthly income too little to pay the tax debt while paying for their necessary minimum living expenses.
  • Doubt on Accuracy of Tax Liability – This is a rare qualification option for an OIC. To qualify, there must be significant doubts as to whether you really owe the tax liability that remains outstanding. This can happen if the taxpayer produces new evidence that casts doubt on the existence or legitimacy of the tax liability or if a tax law was misinterpreted when determining the tax liability.
  • Exceptional Circumstances – Even in situations where the tax liability in question is correct and the taxpayer can manage to make payments, the IRS can still consider an OIC if payment of the tax liability would have the taxpayer living in financial hardship or if paying the tax liability would be unfair in one way or another.

Installment Agreements

Installment Agreements are another product negotiated with the IRS. The IRS provides various installment payment plans for taxpayers who have a tax liability that they cannot pay off in a single lump-sum (without having the taxpayer suffering below the necessary living standards). People who owe the IRS below $25,000.00 can go for a Streamlined Installment Agreement that does not require forwarding financial documentation to the IRS. On the other hand, if a taxpayer owes over $25,000.00, they will need to call the IRS and negotiate for an Installment Agreement.

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Marlee Matlin Seeks IRS Installment Plan to Pay Tax Liability

June 6, 2011 By

Tax scandals are a norm in the lives of many celebrities. When a tax scandal erupts, it especially comes with a reputation risk and huge embarrassment to such celebrities. One of the latest celebrity “victims” of scandal is an Academy Award winning actress who got herself in a $50,000.00 tax liability for her 2009 returns. The famous deaf actress, who recently appeared on a famous reality show where she wanted to become an “apprentice” for a certain famous mogul, downplayed the tax debt as a common thing in the U.S. and stated that she was already paying off the liability. According to sources, the actress is paying off the tax liability through an IRS installment payment plan. She hopes to use the funds that she is set to earn through various TV shows that she is currently involved in to pay her debts to Uncle Sam.

Besides the funds that she is currently seeking to earn, the actress is also aiming to sell off her house and also transfer her kids from private school to public school in order to raise more money to settle her tax liability. The actress, who filed taxes jointly with her police-officer husband, says that her tax liability did not arise from living a flamboyant Hollywood life but rather, it was her poor budgeting that let her finances get way out of hand. She lamented that being an actress and earning income in a haphazard way made financial and tax planning much more complicated as compared to people who earn a consistent and steady paycheck.

The IRS installment payment plan will enable the couple to pay off their tax liability in installments that are more affordable over span of a couple of years. The installment payment plan is available to all taxpayers who cannot afford to pay off their tax liabilities in a lump-sum. However, interests and penalties will continue to accrue, even within the repayment period. To qualify for an installment plan, you will need to call the IRS and request to be placed on an Installation Agreement. There are different options of installment plans that are available from the IRS.

If you owe over $25,000.00, you will need to negotiate with the IRS for a repayment plan. The IRS will require you to fill out Form 433F, “Collection Information Statement Form” detailing all your assets, pay stubs, bank records, and a myriad of other information. In case you do not manage to keep to the installment plan and pay on time and accordingly, the IRS can easily pursue your assets and place liens as they have all your financial information.

Either way, IRS payment plans give a chance for an individual with a huge tax liability to pay it off in manageable installments and avoid having liens placed on their assets and having other financial battles with the IRS.

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Free or Low Cost Tax Help for Low Income Tax Payers

May 12, 2011 By

While there are several income tax breaks designed to help people with lower incomes lower their tax bill, a lot of those breaks are confusing and require professional interpretation. However, the people for whom the breaks are designed often cannot afford to pay a tax professional. Because of this, there are several programs which offer tax help for free or for a low cost.

The Volunteer Income Tax Assistance (VITA) program is available for taxpayers with incomes of $42,000 and offers free tax assistance. The preparers are trained volunteers who focus on those tax breaks which are designed to help people with low to moderate incomes. VITA sites are generally located in community and neighborhood centers, libraries, schools, and shopping malls.

Tax Counseling for the Elderly (TCE) is a program similar to VITA. TCE offers counseling for people 60 years of age and older. The TCE program is sponsored by the IRS and AARP and has over 7,000 available sites with trained Tax-Aide volunteer tax counselors who help people with low-to-middle incomes. Information on AARP Tax-Aide sites is available on the AARP website or by calling (888) 227-7669.

For more information about VITA or TCE, call (800) 829-1040.
Tax problems and questions do no necessarily stop after the income tax return has been filed. Many people need continuing tax help because the IRS has questions or other problems have arisen. Low-income taxpayer clinics (LITCs), which are provided by schools and nonprofit groups and supported by the IRS National Taxpayer Advocate office, offer help for taxpayers through audits, appeals, and collection issues. These clinics target the neediest taxpayers so they can get funding. The IRS has granted increasing amounts of money to these programs, as the interest in the programs have grown. More information about these clinics is available on the IRS website, which includes an interactive map for finding a facility in your area.

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The Current State of Federal Income Tax Reflects Depression Era

May 4, 2011 By

Most of the workforce in the United States were not yet born by the time of the Depression days. Therefore, much of what happened in the 1930s is more of a tale. However, after the 2007 recession that hit the globe, we are starting to see some signs that seem to replay those dark days. One of these signs is the deficit that exists between the federal income tax and the government payments to households in terms of unemployment, reduced income taxes and other government programs targeted at increasing household income. The only other time that this situation happened was between 1931 and 1936. This was done to try and increase the purchasing power of the household and consequently re-energize the economy. However, the government of the day reverted the government-household deficit in 5 years. Most economists today see this reversal too sudden and say that this move was what led to the secondary recession that happened between 1937 and 1938 – only when the economy seemed to start reviving. Our current government needs to borrow a leave from the mistakes of the past administration.

Why Does the Government Play Out This Payment Deficit?

Whenever the economy takes a down turn as was experienced in the recent past, one of the things the government does to jump start the economy is to increase the spending power of the households. The increased spending power comes with a multiply effect that ripples into more household purchases, more production, more support services, and the economy is restored. The way the government does this is by reducing the federal income tax, paying out more in unemployment benefits, educational assistance, disability insurance, and in Social Security. This government income support is referred to as transfer payment.

Where Are We Today?

In 2010, the government transfer payment exceeded the income taxes by 125 billion dollars. Unfortunately, a lot of this cash deficit that was intended to boost consumer spending was mopped out by increasing inflation caused by raising energy costs. The drastic raise in 2011 first quarter prices to an annual rate of 6.1% has in fact reversed all the household income increases for the last quarter of 2010. The impact of more expensive fuel is projected to have an even more impact on the income in the coming days and is expected to drag the economy further. This is coupled by rising unrest in Middle East and impact of the Japan earthquake on the US economy.The increased direct payments by the government that stands at $500 billion and the reduced taxes totaling $312 billion since the recession have left the US Government with a huge deficit. There is growing pressure on the Obama Administation to reduce government spending to manage this growing deficit. However, economists warn that a reduction of the transfer payment as a government measure to curb the deficit will only result in a secondary recession as was experienced in the days of the Great Depression. Even with transfer payments such as unemployment benefit expected to lapse, economists insist that the government needs to increase payment programs and support household income until a more stable economy is achieved.

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Federal Income Tax Help for First-Time Home Buyers

April 8, 2011 By

Anyone who bought a house for the first time during the years of 2008, 2009 or 2010 can take the First-Time Home Buyer credit. Taking this credit reduces a taxpayer’s taxes owed and increases the taxpayer’s refund amounts, depending on if the amount owed becomes less than the amount total refunded. For example, if a taxpayer owes $3,000 in taxes, getting federal income tax help through the First-Time Home Buyer credit and other tax credits and deductions will decrease the total amount owed to $1,500 (resulting in a $1,500 check from the IRS.)

However, there are some taxpayers that will be notified and required to pay back the First-Time Home Buyer credit they received. Each of the years of 2008, 2009 and 2010 have different requirements and payment guides, which affect certain taxpayers when and if it comes to having to pay back the First-Time Home Buyer credit. You will receive a notice in the mail for any information regarding this matter. Again that is only by mail; the IRS will never email or use any other form of contact except through mailing to your permanent mailing address so beware of any “scams.”

In order to qualify for the First-Time Home Buyer credit, the IRS has issued some guidelines for the qualification:

  • You have bought or entered into a legal or attorney binding agreement to buy a main house (meaning that it is your residence and not a vacation or second home no later than April 30, 2010).
  • Must have closed all legal binding buying terms and contracts and have gone into settlement no later than September 30, 2010.

More information is located on the IRS website at http://www.irs.gov

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2 Types of Tax Relief

September 15, 2010 By

2 Forms of Tax Relief You May Qualify For

Tax time seems to come faster and faster each year. As you prepare for that day, it’s a good idea to ask yourself whether or not you might qualify for any kind of tax relief. This comes in many forms ranging from aid to those in a disaster to keeping your assets separated from your spouse. If you are unsure, it’s a great idea to ask a tax preparer for tax relief help and if you qualify for anything. Here are a few examples:

Innocent Spouse Relief

One of the most common forms of tax relief is called “Innocent Spouse”. When you request this, you can avoid paying taxes and penalties that your spouse (or ex) may be responsible for. This could be due to unreported income, faulty deductions, or if you know you aren’t responsible for something. A great example of this is if your spouse is required to pay child support and you are expecting a tax return. If they are behind, your tax return can be used to pay for your spouse’s child support.

Homeowner Relief

In the US, there are a few programs out there that will help cut the taxes of homeowners. This is both federal and state. Some countries may even offer relief to renters. You should definitely inquire about this form of tax relief; if you qualify, you could pay much less in taxes.

These are just a few common examples of the types of relief you may qualify for. It’s difficult to determine what you qualify for so by getting tax relief help from a professional, you might find yourself saving thousands of dollars. It’s definitely worth your time to pursue this each and every year.

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Tax Relief: You Need To Know This About Installment Agreements

July 16, 2010 By

Installment Payment Plan

Debt under $25,000 easily qualifies for a payment plan, but debt over $25,000 must be negotiated. A payment plan has the downfall of penalties and interest accumulation during payment which could take years to pay off.

IR Code 6502 allows ten years for the IRS to collect tax money. To get an IA, the IRS will grant you the extension if you sign Form 900. Delay the process by first speaking to a tax advisor. The IRS may not remember to give you the form; in those cases, make sure you request a Form 900. If you don’t sign the form, you don’t get an installment agreement.

Negotiating Monthly Payments

If you can’t pay your tax in a maximum of three years or you owe in excess of $25,000 ask for a monthly payment plan and complete Form 433-A or –B. Each revenue officer will come to a different conclusion on how much you should pay.

Strategies to get a payment plan:

  • Tell them what payments you can afford when handing in Form 433- A or -B.
  • Commit to paying less for income essential living costs only, i.e. amount IRS states you can afford after essentials. You offer to pay lowest amount as it’s hard to revise once you sign installment plan.
  • If you have $0 or a minus amount contemplate an Offer in Compromise, collection suspension, or bankruptcy.
  • Make an initial payment when you suggest an agreement. Continue the payments regardless if the IRS permitted your IA. Paying a set amount, in a timely matter, for three months may convince the officer that the payment plan and amount is right for you. If you don’t have the means to start immediate payments, a check that is postdated may be accepted.

Tax bills higher than $25,000 must be approved by a manager, not a tax officer. If an IA is approved it could take months to get it in writing.

If You Can’t Fulfill your Installment Payment

Being unable to fulfill a monthly payment requires an exceptional reason such as disability or loss of employment. Call 800-829-1040 for help and also contact the relevant tax officer. If the IRS doesn’t agree, they can start procedures to seize your property; contact the Taxpayer Advocate Service.

An appeal against a revocation can be restarted but the IRS is usually not compliant if the amount is more than $10,000. You must supply new documentation showing your changed circumstances, affecting income and living costs. During the new process for an IA, the IRS may take wages and accounts.

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