{"id":11886,"date":"2018-04-17T19:39:30","date_gmt":"2018-04-17T19:39:30","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=11886"},"modified":"2018-04-17T19:39:30","modified_gmt":"2018-04-17T19:39:30","slug":"what-to-do-if-you-owe-the-irs-money","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/what-to-do-if-you-owe-the-irs-money\/","title":{"rendered":"What to do if you owe the IRS money"},"content":{"rendered":"

Tameka E. Lester<\/a>, Georgia State University<\/a><\/em><\/span><\/p>\n

Tax Day is finally here once more. If you\u2019re getting a refund, lucky you. But if you owe the government money, you may be worried that you have to pay the amount due by the filing deadline of April 17 \u2013 even if you asked for an extension. <\/p>\n

Owing the IRS \u2013 especially when you don\u2019t have the funds to pay \u2013 can cause major stress<\/a>. But before you let the anxiety get the best of you, know this: The Internal Revenue Service, believe it or not, understands. In addition, you may qualify for a collection alternative to pay off your debt gradually or at a substantially reduced amount. <\/p>\n

Most taxpayers, particularly those who may have more difficulty paying an unexpected tax debt, usually aren\u2019t aware that these options exist. As a result, they can end up sending the government more money than they can afford to pay, as I\u2019ve learned in my work at Georgia State\u2019s Philip C. Cook Low-Income Taxpayer Clinic<\/a>. <\/p>\n

This looming issue creates a stressful situation that could be alleviated or minimized by a simple phone call. <\/p>\n

Unable to pay<\/h2>\n

Each year, millions<\/a> of taxpayers receive notices from the IRS reflecting balances they are unable to pay. This represents billions<\/a> of dollars owed to the federal government. <\/p>\n

The IRS takes collections seriously, so it\u2019s important for taxpayers to make arrangements with the IRS for their tax debts. Failure to address them can result in wage and account levies<\/a>, property liens and even the denial of a passport<\/a>. <\/p>\n

The IRS has created three collection processes<\/a> to assist taxpayers so no adverse collection action (such as a levy) occurs: an \u201cinstallment agreement,\u201d \u201ccurrently not collectible\u201d status and an \u201coffer in compromise.\u201d<\/p>\n

Installment agreement<\/h2>\n

Installment agreements<\/a> are commonly referred to as payment plans, which allow a taxpayer to pay the debt in smaller, more manageable payments. These payments are generally the same amount each month for a designated period of time, which will satisfy the debt in full.<\/p>\n

The advantage is it allows you to make small payments toward the overall debt, and the IRS generally cannot take any additional collection activity against you (aside from applying future refunds to the outstanding debt).<\/p>\n

The disadvantage is penalties and interest continue to accrue on the unpaid balance. Therefore, the debt is paid off more slowly than the taxpayer may anticipate.<\/p>\n

A typical scenario would involve the IRS asking the taxpayer how much he or she can afford to pay. If that amount will satisfy the liability in under 72 months and before the 10-year collections statute of limitations expires, the IRS will generally approve the suggested amount.<\/p>\n

This collection alternative can be requested by completing Form 9465, Installment Agreement Request<\/a>, or by calling the IRS\u2019 Automated Collections Service<\/a>. Form 9465 can accompany a completed return (filed on April 17) that reflects taxes due or it can be submitted separately. It also may cover multiple tax years or periods. A one-time setup fee will be charged when the installment agreement is approved. This fee is reduced for low-income taxpayers and for those taxpayers who wish to set up a direct debit agreement. <\/p>\n

While you are in an installment agreement, it is important to remember to pay at least the agreed payment amount by the due date each month. It is also important to file your tax return each year by the filing deadline, even if you can\u2019t pay the full balance due on the return, and pay the full balance when possible. <\/p>\n

Currently not collectible<\/h2>\n

Sometimes a taxpayer\u2019s monthly necessary living expenses (food, housing\/utilities, transportation and health care) exceed the taxpayer\u2019s monthly income. When this occurs, paying the IRS would cause the taxpayer a financial hardship.<\/p>\n

In situations like this, the taxpayer may request that the IRS place collection of a tax debt on hold. This protective coding is known as \u201ccurrently not collectible\u201d status. This is advantageous because the taxpayer is not required to make any payments. Another advantage is the IRS will not levy the taxpayer\u2019s income or accounts.<\/p>\n

As with the installment agreement, a disadvantage of this option is that interest and penalties continue to accrue. Because this is temporary, the IRS can lift the status in the event the taxpayer\u2019s financial situation changes and the IRS deems he or she can pay. <\/p>\n

The IRS will routinely monitor the taxpayer\u2019s information. If the taxpayer\u2019s income increases to the extent that the IRS believes making payments is an option, he or she will be placed back into active collection status. <\/p>\n

The IRS has four main categories of allowable expenses which are capped based on national and regional trends. These, and other expenses, are deducted from any income earned by the taxpayer to determine financial hardship:<\/p>\n

    \n
  1. \n

    food, clothing and other items<\/p>\n<\/li>\n

  2. \n

    housing and utilities<\/p>\n<\/li>\n

  3. \n

    transportation <\/p>\n<\/li>\n

  4. \n

    out-of-pocket health care expenses. <\/p>\n<\/li>\n<\/ol>\n

    The currently not collectible status can be requested by mailing in a completed Form 433-F, Collection Information Statement<\/a>, or by calling the IRS once the return has been processed and you receive a bill. Typically the IRS will want you to file all prior year returns before they will place you in the CNC status. <\/p>\n

    Offer in compromise<\/h2>\n

    The offer in compromise<\/a> program assists taxpayers with renegotiating their tax debt by looking at the taxpayer\u2019s cash and noncash assets, monthly disposable income and future income to determine how much it can ever expect to collect.<\/p>\n

    Once a number is agreed upon, the taxpayer can elect to pay the amount in 24 months or less. The advantage of this alternative is that the remainder of the tax debt is forgiven, and once the negotiated terms are satisfied, any liens that may have been filed on your property are released within 30 days.<\/p>\n

    The disadvantages include adhering to certain compliance requirements for five years after acceptance, such as filing all required returns and paying all taxes due by the filing deadline each year, and forfeiture of any refunds for a period of time. For some taxpayers, these disadvantages will far outweigh the fresh start created by the elimination of the excess tax debt.<\/p>\n

    The offer in compromise (when there\u2019s doubt as to collectability) can be requested by completing Form 656-B<\/a>. The offer must be accompanied with documentation \u2013 on income received, expenses paid and liabilities owed on noncash assets such as real estate and vehicles \u2013 showing the taxpayer has an inability to pay the full balance owed. An application fee and initial payment must also be included with the completed offer, unless your income is below 250 percent of the poverty line. <\/p>\n

    Take action<\/h2>\n

    So whether you\u2019ve been ignoring IRS notices about taxes owed on previous returns or you\u2019re expecting to have to write a check when you file last year\u2019s return, it\u2019s time to take action. <\/p>\n

    The IRS may have a reputation for being difficult to deal with, but as I noted above, it can be quite understanding when individuals are open and up front about their financial situation and willingness to pay what they can.<\/p>\n

    The worst thing you can do is be nonresponsive. Contact the agency or your local Low-Income Taxpayer Clinic \u2013 there\u2019s at least one in most states. Take advantage of one of these alternatives and work toward resolving the issue. <\/p>\n

    You will come out better in the long run.<\/p>\n

    \"TheThis is an updated version of an article originally published April 15, 2016.<\/em><\/p>\n

    Tameka E. Lester<\/a>, Clinical Assistant Professor and Assistant Director of the Philip C. Cook Low-Income Taxpayer Clinic, Georgia State University<\/a><\/em><\/span><\/p>\n

    This article was originally published on The Conversation<\/a>. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Tameka E. Lester, Georgia State University Tax Day is finally here once more. If you\u2019re getting a refund, lucky you. But if you owe the government money, you may be worried that you have to pay the amount due by the filing deadline of April 17 \u2013 even if you asked for an extension. Owing […]<\/p>\n","protected":false},"author":44,"featured_media":11887,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[546],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/11886"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=11886"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/11886\/revisions"}],"predecessor-version":[{"id":11888,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/11886\/revisions\/11888"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/11887"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=11886"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=11886"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=11886"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}