If you owe the IRS money and cannot pay it right away, the agency offers a number of options for paying over time, and in some cases even reducing your overall liability. The key is to not ignore IRS notices or wait until you think you have enough money to begin negotiating with the agency.

Contact the IRS now about your back taxes and options for paying them off. Acting now can help prevent an IRS lien on your property and in some cases result in the IRS forgiving certain penalties. Payment plans can last as long as six years, and if you have no hope of paying your overall tax debt you can apply for an offer in compromise (OIC) to lower your tax liability. 

Determine How Much You Can Pay 

Before deciding which payment option to pursue, figure out how much you can pay, now and in the future. Look at your other outstanding debts, income, and assets. Before submitting any request for a payment plan, you want to make sure you will be able to make the monthly payments.

If you determine you can pay your entire tax liability but just need a little more time, you can apply for a short-term payment plan. Currently, due to the IRS’s pandemic relief, individuals have up to 180-days (compared to 120 days pre-pandemic) to pay off taxes, including penalties and interest, under a short-term payment plan. 

If you need more time, you can apply for a long-term, or installment, agreement by completing form 9465 online or printing it out and submitting via mail. You have the option to pay a lump sum when submitting your form and then pay off the remaining debt over 72 months. Or you can pay the entire tax liability over the 72-month period. The IRS encourages taxpayers to pay the maximum amount each month and pay as quickly as possible in order to avoid further penalties and interest.

Offer In Compromise

If you determine there’s no way you can pay your entire tax debt, even over six years, you can apply for an OIC to lower your overall tax liability and then pay the discounted debt over time. Unlike short- and long-term payment plans, an OIC is not automatically accepted by the IRS. In fact, the agency only accepts about 40% each year. 

Here are some tips to improve your chance of having the IRS accept your OIC application: 

1) Get into compliance —  make sure you have filed all tax returns for the past six tax years, and are up-to-date on withholding or estimated tax payments for the current year. If you are missing a return or forgot to make your first-quarter estimated tax payment, the IRS will reject your OIC.

2) Offer the lowest possible amount – the IRS uses a complicated formula to determine your offer amount. The agency does not accept a simple percentage of your total tax liability. Instead, the IRS looks at the realizable value of your assets, which is the amount the IRS would receive if it seized and sold these assets. Then the agency will calculate how much it would get if it were to garnish your wages for a year. The IRS then adds these two figures to come up with the offer amount. You never want to offer more than this amount.

3) Don’t wait to submit your OIC – don’t wait to save up what you anticipate your OIC will be or any amount of money you might put toward your debt. The more money you have or are making, the more the IRS will require you to pay. You should submit your OIC as soon as possible so you pay the government the least, and avoid the extra penalties and interest that would accrue while you wait. 

Have Questions? Call the Experienced Tax Attorneys at Wiggam & Geer

If you have a tax liability that you don’t think you can pay and want to find out more about ways to pay it over time or have it discounted, the experienced attorneys at Wiggam & Geer can help. We will evaluate your situation, recommend a course of action, and assist you with any filings and negotiations. Contact Metro Atlanta’s top tax attorney’s by clicking here or giving us a call at (404) 609-1300.