Your business venture didn’t go exactly the way you planned. Although you tried everything you could think of, you’ve fallen short. Your income barely exceeded your expenses, and with April 15 just around the corner you realize there isn’t enough cash to pay your taxes. Not filing a return isn’t an option, because it’s a Federal offense. Filing without including payment is not a crime, but your debt to the IRS is real, and it’s not simply going to go away. You’re basically honest, and have every intention of paying your taxes, but you’re not sure how to go about it. It’s time to start looking for ways to relieve the stress of owing money and not being able to meet your financial obligation. Following are four legitimate ways to get out of tax debt.
In order to alleviate the debt, a plan can be worked out to make payments on a regular basis until it’s paid off. Of course, it would be better if the entire amount was paid up front even if you’re late in doing so. There may still be a late fee, but you can avoid interest on the debt. If you’re unable to pay everything you owe at one time, then an Installment Agreement can be implemented–you can work out a plan with the IRS to make regular payments until the tax debt, including interest and penalties, are paid.
Partial Payment Installment Agreement
In the event your debt is so great that even with a payment plan in place you’re unable to meet your financial obligations, there is an alternative. Going on the theory that something is better than nothing at all, the government may be willing to settle for a partial payment of your tax debt. Called a Partial Payment Installment Agreement (PPIA), the plan requires that you accept some part of the debt in order to get it off the books. Before a plan can be agreed upon, you may be asked to sell off some company or personal assets to pay down the bill. As you might expect, the terms of a PPIA are more stringent than a regular installment agreement. Beyond that, they work the same way; you make payments until your debt is paid off. A Partial Payment Installment Agreement is subject to review on a regular basis, and if it’s determined your income has risen to the point you should be able to pay the bill, you will be required to do so in a timely manner.
Offer in Compromise
An Offer in Compromise (OIC) works substantially the same way a Partial Payment Installment Agreement does–you and the government agree that you’re unable to make a full settlement so a payment plan is worked out. The major difference between an OIC and a PPIA is that once an agreement has been worked out with an OIC, it is final and remains in effect until the agreed upon debt is terminated or you fail to make your payments.
Not Currently Collectible
When the IRS begins the process of negotiating a debt they determine what your overall financial status is. If you’re in dire straits, they could come to the conclusion that you’re unable to pay the bill at all, at least for now. In that case you may be eligible for your debt to be classified as Not Currently Collectible (CNC.) That doesn’t mean the debt is canceled, only that you’ve been judged to be unable to pay at the current time. The debt remains on the books. The government may also take out a tax lien on future assets, and interest and penalties may still apply.
Before entering into an agreement with the IRS in any of these four categories–Installment Agreement, Partial Payment Installment Agreement, Offer in Compromise or Not Currently Collectible–you would be well served to consult a tax accountant or tax attorney to insure your best interests are being met. No one likes to be in debt to the tax man, but you’ll like it even less if you don’t protect yourself while trying to satisfy the debt.
This is a guest post from Bailey Harris, who writes about home insurance and related topics.