The “What Ifs” for Struggling Taxpayers
People facing financial difficulties may find that there's a tax impact to events such as job loss, debt forgiveness or tapping a retirement fund. For example, if your income decreased, you may be newly eligible for certain tax credits, such as the Earned Income Tax Credit.
Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. In many cases, there are steps we can take to help ease the burden. You also should file a tax return even if you are unable to pay so you can avoid additional penalties.
What if I can’t pay my installment agreement?
You have several options available if your ability to pay has changed and you are unable to make payments on your installment agreement or your offer in compromise agreement with the IRS. Call the IRS immediately at 1-800-829-1040. Options could include reducing the monthly payment to reflect your current financial condition. You may be asked to provide proof of changes in your financial situation so have that information available when you call.
What if there is a federal tax lien on my home?
What if there is a federal tax lien on my home?
If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are a number of options to satisfy the tax lien. Normally, if you have equity in your property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution's lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructing to assist taxpayers during this economic downturn.
To assist struggling taxpayers, the IRS plans to significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances. The IRS plans to review the results and impact of the lien threshold change in about a year.
Also, the IRS is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA).
Additionally, the IRS will modify procedures that will make it easier for taxpayers to obtain lien withdrawals. Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it.
For more information, see IR-2011-20. IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start; Major Changes Made to Lien Process; IR-2008-141. IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell; and Understanding a Federal Tax Lien.
What if a levy
on my wages is creating hardship?
Contact the IRS at the telephone number on the levy or correspondence immediately and explain your financial situation. Service is avaible from 8 a.m. to 8 p.m. local time, Monday through Friday. If the levy is creating an immediate economic hardship, the levy may be released. A levy release does not mean you are exempt from paying the balance. The IRS will work with you to establish payment plans or take other steps to help you pay off the balance. To help ensure quick action, please have the fax number available for the bank or employer office that is processing the levy. For more information, see Levy.
What if I can’t resolve my tax problem with the IRS?
Contact the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.
You can contact TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to determine whether you are eligible for assistance. You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546. Taxpayer Advocate Service – Your Voice at the IRS. You can file Form 911, Request For Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. For more information, go to www.irs.gov/advocate.
What if I need legal representation to help with my tax problem but can’t afford it?
Low Income Taxpayer Clinics (LITCs) represent low income taxpayers before the Internal Revenue Service, assist taxpayers in audits, appeals and collection disputes, and can help taxpayers respond to IRS notices and to correct account problems. If you are a low income taxpayer who cannot afford professional tax assistance or if you speak English as a second language (ESL) and need help understanding your taxpayer rights and responsibilities, you may qualify for help from an LITC that provides assistance for free or for a nominal charge. Although LITCs receive partial funding from the IRS, LITCs, their employees, and their volunteers are completely independent of, and are not associated with, the federal government. The LITCs are generally operated by nonprofit organizations or academic institutions.
Each LITC independently decides if you meet the income guidelines and other criteria before it agrees to represent you. There is at least one LITC in each of the 50 states, the District of Columbia and Puerto Rico. You can find an LITC located in or near your area by using Publication 4134, Low Income Taxpayer Clinic List. This publication identifies all LITCs who represent low income taxpayers before the IRS or provide ESL services, and is available at www.irs.gov/advocate or your local IRS office.
Low income taxpayers also may be able to receive assistance from a referral system operated by state bar associations, state or local societies of accountants, and other nonprofit tax professional organizations.