What To Do If You Owe The IRS and Can’t Pay

If you owe money to the IRS but can’t pay it now, don’t panic. You have options.

If you can borrow money to pay off your debt now, that might be your best choice. You could take out a loan, use your credit card, or ask family members for a loan.

Otherwise, you have five options to consider:

  1. A short-term extension gives you up to 120 days (4 months). There are no fees, and you’ll pay less in penalties and interest than the other options.
  2. A monthly payment plan is called an installment agreement. The two most common types are guaranteed (owe $3,000 or less and pay everything off within three years) and streamlined (owe $50,000 or less and pay everything off within 72 months). Both types come with set-up fees, and penalties/interest will continue to accrue.
  3. Deferring payment, which is called “currently not collectible” by the IRS, is only an option for those whose financial situation is so severe that if you pay your taxes, you won’t be able to pay your basic living expenses. Penalty and interest will continue to accrue, and you’re expected to pay your debt once your finances recover.
  4. Negotiating a compromise comes in three types. “Doubt as to liability” means you don’t believe you owe the tax and can prove it. “Doubt as to collectibility” means you don’t believe you can pay the full amount but you can pay a smaller amount. “Effective tax administration” means you can pay what you owe, but there are economic hardship, public policy, or equity reasons for the IRS to accept less than the full amount. Each option allows you to settle your tax bill for less than you owe and requires documentation.
  5. Filing for bankruptcy has long-term financial and legal consequences and should not be done without an attorney’s help.

Visit www.taxpayeradvocate.irs.gov for more information.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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