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Read a step by step guide on how to step out of the most uncomfortable scenario of all: having the IRS pursuing you for taxes you still owe.
The IRS is in the fast track lane. In the last 7 years, audits directed at high-income earning people have risen at least by a factor of four. The tax gap (the difference between how much people pay and how much they owe) was estimated at more than 350 billion dollars. last year. So beware because Uncle Sam is keen on getting his money back from those who owe.
Having the IRS on your back is not something that will help you relax. There is no need to panic - IRS isn't the mob and millions of Americans go through audits every year and live to tell about it. That’s why we’re here: to make sure you have all the information you need in order to fully understand your situation. What rights and options you have, what’s advisable and why not, and many other useful tips to help you get out of this undesirable position as quickly (and clean) as possible.
First thing to consider: Pay up
Before getting too complex with this, just think about it. The simplest way to end it all is accept the bill and pay. In the end, this is all IRS wants. You can choose among many common ways of paying: a check, cash, money order, e-transfer, you name it.
If however your tight financial situation does not allow for this simple solution, you can go for alternatives like credit cards, a 401K, cash value in a life insurance policy or home equity. An interesting move would be to take a bank loan; just make sure the bank interest is lower than the one IRS will ask (including penalties) if you don’t pay.
Ok, I’ll pay. What options do I have?
Especially if the amount is high, you won’t feel great about emptying your pockets all of the sudden. So you may think of asking for an installment agreement. It’s a legitimate way to divide your debt into many small payments, over a period of 10 years. To do that, fill out Form 9465 (Installment Agreement Request) and call the IRS at 1-800-829-1040 if you have any questions.
If you take this path, you should know that IRS prefers the safe way (for them). That is, a direct debit or a payroll deduction. These can be good options for you, as it will keep the money going steadily
to the IRS. If you are late on only one payment, the IRS could terminate the agreement and start the lien process. That’s why direct debit and payroll deduction are good options.
There are other details to be aware of. If you go with a direct debit installment agreement, you’ll have to pay a fee of $52. If it’s not the first time you’re doing this, there’s a reinstatement fee of $45. While waiting for the agreement to be approved, you have to make voluntary payments. During this period, however, you’re mostly safe from a levy being placed on your property. This is also valid for 30 days after your application has been refused, 30 days after the agreement has ended, and during the time when your appeal on the termination or rejection is being reviewed, so don’t worry, you’re safe until you’ve received your due process.
You can ask for a temporary delay until you get back on your feet. The trick is that you have to pay interest and penalties in the meantime, and you also risk a lien being placed on your property.
Why not negotiate?
If you know you can’t pay everything you owe, you can ask for an offer in compromise. In other words, you can ask the IRS to let you off the hook for at least a part of the amount you owed. In some cases, the IRS accepts forgiving a part of the debt, if it thinks it does not have a good chance to see the money anyway. It’s not an easy process, either way. You have to pay $150 application fee and wait for approval. If you get the green light, you still need to pay something quickly, in cash (a lump payment amount to, at most, five installments). You also have the option of a short-term periodic payment (for a maximum of 2 years after your application was accepted). Don’t forget that the final word on the time that you have to pay your debt belongs to (who else?) the IRS.
To sum up
Our advice is that if you get into a dispute with the IRS, it’s better to ask for peace as quickly (and simple) as possible. The fastest way to indulge the big bad bear is to give him the jar with honey and pay up. If you can’t, go for the options that help you delay things and even try to decrease your debt, but don’t bother trying to escape the IRS It’s just not a healthy way to go. It’s not easy at all to negotiate with the IRS, but it’s also not impossible. Good luck!