Monday April 5 2010
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What to do when we can’t pay our federal taxes
With the April 15 deadline to file taxes less than two weeks away, we want to take a moment to advise those of us who can’t afford to pay what we owe the federal government.
The key rule here is don’t hide under a rock if we can’t pay. Instead, file our return on time. Here’s why: The IRS penalty for failure to pay is not nearly as punitive as the penalty for failure to file.
So if we can’t pay everything we owe, file our return and submit what we can. From there, we have options.
If we know we can pay our bill entirely within four months (August 15), send what we can — even if it’s zero — and call the IRS to explain the situation. In most cases, paying within four months in entirety is perfectly acceptable; we won’t go to tax jail nor will we face any tax liens.
What if we know we can’t pay your entire tax bill by August 15? Then we must file what’s called an installment agreement request (IRS form 9465) and attach it to the front of our tax return. At that point, we can begin paying the monthly installments we’ve proposed.
The reality is that the IRS moves at a snail’s pace when replying to installment agreement requests. So they may not get back to us for eight or 12 months. By that time, we may have everything paid off.
If not, and our installment agreement request is denied, that’s the time to enter into further negotiations with the IRS to come up with a solution. But at least we’ll have been working each month in the interim to reduce our tax bill with monthly payments.