If you owe the IRS money, you may be wondering about the options that are available to you and about the next step that you must take. The one thing you should not do if you have any amount of a tax debt – large or small – is to ignore it for whatever reason as this will not make it go away. In fact, by disregarding it you could end up making the situation worse and increasingly difficult to fix. As Virginia tax attorneys we often see that individuals in such a position do want to pay off their tax debt, but just don’t have the means. Depending on the facts and circumstances of your case, you may be granted some time to pay off your tax debt or be able to do so in monthly installments. You may even have an option to settle your debt for a fraction of the amount you owe if certain conditions are satisfied.
There are several courses of action you would be well advised to follow if you owe the IRS money.
Get organized: You may first wish to compose yourself, not be distressed by the situation and get all your documents in order. Read through the IRS notices and keep them organized in a file. Get all other related paperwork together. Make a list of missing documents and start making a plan to find or obtain them.
Immediately seek professional help: Sometimes, all you need to do is contact the IRS and pay what you owe them. If you have the means to do that, it’s the simplest and most straightforward way to get rid of your tax debt. However, if you owe the IRS money, but don’t have the money to pay, you are in trouble and you need help.
Contact an experienced Virginia tax attorney: You want a tax lawyer who has a successful track record of helping individuals resolve their IRS tax debt. A knowledgeable tax lawyer in Virginia can help guide you through what might be a complex process and also prevent you from making crucial mistakes that may land you in further trouble with the IRS.
Act quickly: This is critical. While the IRS doesn’t always respond quickly and may give you a little bit of time to pay what you owe, this window is very limited. The longer you wait, the more penalties you are likely to rack up. It would be in your best interest to explore your settlement options and pursue them as soon as possible.
Ask for penalty abatement: When you are negotiating with the IRS, it is often possible to get penalties and the accruing interest reduced if you can show that the money was not owed or that you suffered a catastrophic family event, unexpected job loss or illness. Penalties are often a significant portion of your tax debt. So, if you can get the penalties waived, you will save a substantial amount of money.
Try to buy some time: If you have not put this off for too long, you may just need a short extension. This is particularly true if you have not incurred substantial penalties and if you are able to pay what you owe right away. Sometimes, you may just need a little bit of extra time and the IRS understands that. You can go online to file an application requesting an extension. This is a simple procedure that can save you money and a lot of headache in the future.
Pay your debt in installments: IRS installment agreements are among the most common types of settlements that enable taxpayers to pay off their tax debt through monthly payments. Often, these installments are paid over a period of five years. The terms and conditions granted by the IRS often depend on any special circumstances, the amount that is owed, the taxpayer’s income, liabilities and assets, etc. This type of settlement may be requested by completing a Form 9465. However, if you owe more than $50,000 in taxes, interest and penalties, you may be required to file a Form 433 as well.
Negotiating a Partial Payment Installment Agreement: This is a type of installment agreement where the IRS will accept a payment that is less than what is owed. However, it is important to understand the IRS will not agree to such a settlement unless you can establish that you are able to make monthly payments but cannot cover your total tax debt over a period of several years.
If you have a large tax debt, it would be in your best interest to consult a seasoned tax attorney who can examine this option and help you decide what is the best move. In order to be eligible for a Partial Payment Installment Agreement, the debt must be at least $10,000 and you must complete a Collection of Information Statement.
Consider an Offer in Compromise: An Offer in Compromise is when you make the IRS an offer to pay an amount that is a fraction of what you owe. You may pay this amount as one lump sum payment or over a short term. However, in order to get this type of settlement approved, you will have to convince the IRS that this is their best prospect of getting money from you. You must also show that it is highly unlikely that you will be able to pay the full amount for many years.
It is important to remember that penalties and interest will continue to accumulate while the IRS is considering your offer and the agency only accepts about 15 percent of these offers. So, it is crucial that you have an experienced tax attorney on your side who will maximize the chances of your offer getting accepted.
Pay attention to any statute of limitations: Many taxpayers don’t realize that the IRS must collect tax debt within a certain time limit. Under the law, the IRS must collect all debt owed within 10 years from the date of assessment. If the time limit has passed, you may not owe the IRS any money.
Declare bankruptcy: Filing a Chapter 7 bankruptcy may erase certain types of tax debts. However, this is a process that is complicated. Consult an experienced tax lawyer to find out how a bankruptcy filing might help resolve your tax debt and what type of impact it could have on your financial future.
If you or a loved one is overwhelmed by tax debt, the experienced Virginia tax attorneys at Frost & Associates can advise you about your options and help you obtain the best possible resolution in your case. Please call us for a free initial consultation.