Paying off your tax debts to the federal government is not optional, but the IRS doesn’t know whether someone is in a position to pay off those taxation bills or not. Failure to pay taxes can result in the IRS sending a notice of levy, which essentially grants them the right to sell of the tax defaulter’s assets, cease bank accounts, directly debit monetary sums, and more to settle the tax debts with penalties included.
However, if you are really unable to pay off the taxes in time due to one reason or the other, all hope is not lost. There are a few ways to tackle the problem, which we will discuss next.
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Contact a Tax Consultant Before Things Become Too Bad
It’s best if you consult an expert before the IRS takes serious action, but just in case you have already received a notice of levy or lien, you should immediately contact a tax consultation service. They can start negotiating with the Internal Revenue Service (IRS) on your behalf, to come to a mutual solution. Given that they are experts in tax law, your consultants will also be able to guide you towards taking the best possible course of action in light of the situation. This may or may not involve establishing a gradual repayment system with the IRS.
Pay as Much as You Can within the Last Date
If you are not a defaulter yet, but you know you cannot pay the whole tax amount in due time, simply pay as much of the total as you can within the deadline, and then file your taxes with a Form 9465 attached.
Understand Form 9465
Form 9465 is also called the Installment Agreement Request form. By attaching it with the return, you will be asking the IRS to grant you an installment plan for paying off there maining dues in monthly installments. The form should also specify the following:
- The tenure, or how long the taxpayer wishes to take in order to pay off his/her tax dues
- The amount of money the taxpayer wishes to pay every month during the tenure of the installment plan
- The exact date on which the taxpayer wishes to make the payment every month
If the total due amount is below $25,000 and the taxpayer is willing to pay it off in five years or less, chances of approval are almost assured in most cases. Although a mandatory charge of $43 is unavoidable, if the taxpayer acted before receiving a notice of levy and filed his/her return in due time with Form 9465, they will only have to pay a 0.25% penalty on the due balance every month, instead of 0.5%, which is the standard for those who do not file in time. Additionally, a 5% penalty per month on the due balance can also be completely avoided by paying as much of the tax as possible and filing the return with Form 9465, within the deadline.
In exceptional scenarios, if the Internal Revenue Service finds that the taxpayer is truly unable to pay off their tax debt, even with an installment plan, they may reduce the debt and settle for a significantly smaller amount. However, that will only be applicable if the taxpayer sends Form 656 (Offer in Compromise) and Form 433A (Collection Information Statement) in due time to the IRS, along with the tax filing returns.
