File an extension
There’s more than one kind of IRS extension. The less known ‘Undue Hardship’ extension allows taxpayers additional time to pay their taxes without incurring penalties. You still pay interest that accrues at the standard federal rate plus 3 percent per month. File IRS form 1127 the ‘Application for Extension of Time for Payment of Tax Due to Undue Hardship’. This kind of extension is far from automatic. You will need to show extenuating circumstances to be approved, such as illness, job loss, a death in the family or other extreme circumstances. Still, this remains a highly viable option, especially with so many people suddenly out of work due to the economy.
Negotiate a Payment Plan with IRS
There is a very good chance the IRS will accept a payment plan. You file IRS form 9465, a ‘Request for installment agreement’. If the amount is $25,000 or less (including combined taxes, penalties and interest you may even qualify for the streamlined acceptance procedures offered by the IRS. This means that you aren’t required to file additional documentation that proves your ability to pay. Once you go over $25K, the IRS will want a detailed financial statement to determine how much you can afford to pay each month. This process can be a burden and often leaves my clients wondering if a blood sample and rights to your first born will be ‘requested’ next. I remind my clients that the alternative is worse.
Settle with the IRS
If you have a financial hardship, a settlement with the IRS may be your best option. The IRS considers what you owe, your assets, and your ability (or lack thereof) to repay what you owe. The IRS has specific settlement options depending on if you really owe the tax or if the issue is more your ability to pay (there are other factors as well). The IRS will want a detailed financial statement to determine your ability to pay each month. If you (or your attorney) can reach a settlement you may be able to pay much less than the total you owe the IRS. The phrase ‘pennies on the dollar’ is overused in marketing by my fellow lawyers, CPA’s and enrolled agents but it is possible. Even when a ‘pennies on the dollar’ settlement isn’t reached, it’s often favorable to you. After all, who ever thought they’d get a discount on their taxes even while making monthly installment payments?
File your taxes no matter what
Failing to file your taxes is how you get in even deeper trouble with the IRS. Even so, don’t let unfiled tax returns from stopping you. Fixing your tax problem is one of the biggest gifts you could ever give yourself. While it’s not dirt cheap to fix a big tax problem you’ll likely find your peace of mind is worth every penny.
Until next time,
Jeffrey I. Fouts, Tax Attorney
Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.
I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors may covet my Google ranking but my clients covet my sound counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.