If you are hit with an unexpected tax obligation or have hard times financially and cannot pay your tax bill in full, you may be able to arrange an Installment Agreement with the IRS and other tax entities. This type of agreement allows you to pay your tax obligations over time.
Packey Law Corporation can help you work with the IRS and other tax entities to create an Installment Agreement that works for your needs. As the tax obligation rises, the complexity of the negotiation and the agreement also increases. Having someone who knows how to negotiate these deals effectively can be an invaluable resource for someone struggling with large amounts of tax debt they are unable to pay off immediately.
Types of Installment Agreements Available
You must file all your tax returns before you can set up an Installment Agreement. Filing your taxes will allow you to determine exactly how much you owe and help identify what your monthly payments may be. How much you owe will also be an important factor in what type of Installment Agreement that can be arranged. Installment Agreements can have different requirements according to the tax entity. Packey Law Corporation can help determine which course of action to take for each tax entity.
Streamlined Installment Agreements
An IRS Streamlined Installment Agreement may be a good option for taxpayers who owe $50,000 or less in taxes can use this agreement as long as the taxpayer agrees to have the total amount paid in full within 72 months or less.
Although the IRS will not need a formal financial statement, they will need some financial information to set up a Streamlined Installment Agreement. Again, under this type of arrangement, the IRS will not typically file a tax lien, however may file a tax lien due to prior history of tax liabilities and non-compliance.
Partial Payment Agreements
If you cannot afford the streamlined payment plan, you may be eligible for a partial payment agreement. Instead of taking into account how much you owe and spreading it out over time, this arrangement will examine how much you can actually afford to pay monthly. Many times, the statute of limitations will run on the tax liability wherein partial payment of the liability will pay the liability off in full.
Unlike the other payment plans, if you set up a partial payment agreement, the IRS can still file a tax lien on your real property to protect its interests. The IRS will also ask you for precise financial information to determine the amount of your monthly payment.
Non-Streamlined Installment Agreements
You can also make special arrangements to pay the full amount. In these situations, you will need to work directly with an IRS agent.
The IRS may ask you to sell off assets, get a bank loan, or get a home equity loan to help pay for taxes owed. In this type of agreement, Packey Law Corporation can negotiate with the IRS or tax entity to forestall or avoid these types of requests depending on your circumstances.
Packey Law Corporation can help you understand your options and provide tactics to avoid default of your Installment Agreement.
Reducing or Eliminating Penalties: Showing “Reasonable Cause” for Failure to Pay
Keep in mind that you should never simply avoid filing your tax return if you cannot pay. If you do not file, you will likely pay more penalties and interest than you otherwise would by creating an Installment Agreement with the IRS. The failure-to-file penalty is usually larger than the failure-to-pay penalty.
Applying to avoid penalties often goes hand-in-hand with arranging an Installment Agreement. While it is rare to get interest completely set aside, penalties can sometimes be prevented if you show the IRS that you have “reasonable cause” for the failure to pay your taxes. Falling on hard times can be enough to show the IRS why you cannot pay. The reason that you did not pay cannot be because of “willful neglect.”
There really are no set rules for what the IRS considers “reasonable cause.” Each situation is addressed on a case-by-case basis. Essentially, as long as you or your attorney can convince the IRS that you have a good reason for the late payment, then you can set aside some or all of the penalties. Having an attorney to help with the tax resolution process can increase your chances of avoiding penalty payments.
Some examples of situations that may help avoid penalty fees may include:
- Death of a family member or someone else who has a close relationship with the taxpayer.
- Destruction of the taxpayer’s home or another place of residence.
- Unable to determine the amount of tax for reasons beyond your control, such as the inability to gather accurate records.
- Materially impaired civil disturbances (divorce or domestic violence).
- An error occurred with the return, but it occurred while you were acting with “ordinary business care and prudence”.
The IRS may also consider whether you have a history of paying late and when the problem described occurred. The IRS may also ask for supporting documents to go along with your application.
An experienced tax resolution attorney will be extremely helpful if you are considering entering an Installment Agreement. You may not realize what type of obligations you may have or even how much you can afford as part of an agreement, but the team at Packey Law Corporation can help. Call 916-564-1600 for more information or to schedule an appointment.