I can’t pay my tax bill: what are my options?

Services for Real Estate Pros with Anchor Tax Relief LLC 00100741-EA
It’s late October. My favorite time of the year. The holidays are coming fast, fall colors paint the landscape, and  the football season is in full swing.
But in case you haven't noticed, it's also the season for IRS notices. The extension deadlines for business and individual income tax filings expired  on Sept 15 and Oct. 15, respectively. Of course, many people who finish their tax returns at this time of the year owe money to the IRS and the state.
Now they can't pay and the IRS is sending troubling collection letters.
Tax debt can happen to good people, and for many reasons. I've helped taxpayers resolve tax problems for many years; I will give you a few examples of how people get into this pickle:
  • They changed employers and their new Form W-4 did not have enough federal withholding taken out.
  • They could have changed employers and now they work for someone who pays them on a 1099-NEC as an independent contractor (this is a whole separate issue on whether this is appropriate or not). Therefore, there is usually not any federal withholding paid into the IRS.
  • They own a business that's suffered a downturn in the pandemic. Or, a business that could have been doing well before, but now it is not when the tax is coming due.
  • They are selling a property with a large taxable gain, but not getting any cash out at the sale.
  • Major life events happen (serious illness, divorce, death of a loved one) and they struggle to cope with responsibilities they once handled with ease.
So, what is a person (or business) to do? Well, fortunately there are many options to choose from; however, please note that the options can only apply if your facts and circumstances allow for it.
Installment Agreement. Most people will fit into the bucket that allows them to fully pay their tax, penalties and interest over a payment plan. This is typically paid over 72 months. Depending on the dollar amount you owe, you may not have to provide any forms or documents to set this up.
Partial Pay Installment Agreement. It may be that you can pay some payment monthly- but not the full amount that would allow you to pay it in full over the 72 month period. You may qualify for a partial payment plan. Your monthly payments will be lower, the IRS agrees not to levy your bank account or paycheck as long as you make the payments, and at the end of it all you'll end up settling with the IRS for less than you owe.
If this is the case, the IRS is going to need Form 433-A for individuals or 433-B for businesses along with A LOT of documentation. They are going to get up close and personal, vet and confirm the financial information you provide, so please be honest.
Currently Not Collectible. If you do not have any (or much) equity in assets and you do not make a lot of money, you could possibly qualify for Currently Not Collectible (CNC) Status. This is where the IRS basically says you cannot afford to pay (again, based on your facts and circumstances) and they set your account off to the side until time runs out or your situation changes. Forms and documentation are also required here.
Offer in Compromise. Finally, if you do not have any (or much) equity in assets and you do not make a lot of money you could possibly qualify for an Offer-in-Compromise (OIC). This is another option where you settle for less than what you owe. It's the solution you see advertised by the brand name tax relief companies.
It's really possible to settle for thousands less than you owe. I've had cases where taxpayers save tens and even hundreds of thousands through an Offer in Compromise. But again, your personal situation has to allow for you to qualify.
Please note, the IRS does not “negotiate.” They are not the credit card company that you call and ask if they will take $6,000 cash today on your $10,000 balance due. The IRS uses a mathematical formula using the forms they have created to see what option is best for your situation.
In the current climate of the IRS, they are answering less than 10% of all calls. Yes, their customer service stinks. Do your best to call early (some lines open as early as 7 a.m. EST) and often.
If all else fails, please contact a licensed professional (CPA, EA, or attorney) to help you with getting you the help you need. Tax professionals have a separate 'priority' phone line they can use to get through to assist you in getting your case resolved. Please let me know if you have any questions.

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