IRS action typically begins by imposing penalties and interest, which may escalate to asset seizures or tax liens depending on your particular circumstances and tax compliance history.
Once the IRS has assessed your liability, you have two options for dealing with it: accept it or ask them for a payment plan. Time is running out; so be proactive quickly!
Failure to File Penalty
Failure-to-file penalties consist of five percent of any taxes due, per month it goes unpaid, up to 25%. Starting this week, IRS officials will begin sending compliance letters to non-filers earning over one million annually.
Targeting wealthy tax cheats has always been the goal, especially those who evade filing requirements and do not report income to the IRS in order to evade paying taxes they owe. You can click the link: https://www.ussc.gov/Tax_Fraud_FY16.pdf to learn more.
An effective plan to evade taxes may include hiding assets in offshore accounts or using shell companies to make purchases and payments, like using one used by a New York construction company owner to purchase cars and equipment, pay rent on his home, purchase yachts and pay tuition for his children – as well as avoid New York sales tax on these transactions!
The IRS has increased their resources and efforts to detect tax evaders, testing out new methods for finding these wealthy individuals who do not file their taxes. Thanks to an infusion of funding, this was possible. Furthermore, they experimented with expanding criteria for their streamlined installment agreement program, potentially qualifying more taxpayers in future.
Failure to Pay Penalty
Failure to pay taxes by their due dates results in an IRS failure-to-pay penalty that ranges between 0.5% and 25% of what remains outstanding after its due date.
Failure-to-pay penalties differ from late filing penalties in that they do not depend on whether or not your return was filed on time, but rather depend on factors like income level and type of tax debt you owe – generally speaking those with larger tax obligations will face greater failure-to-pay penalties than those with smaller liabilities.
As well as penalizing you for tax debt, the IRS also assesses interest charges to your balance owed. This interest accrues from the date that penalties were assessed until final resolution – effectively increasing your bill for penalties and tax.
However, the IRS will waive most penalties if you can show that there was reasonable cause for not meeting your tax obligations.
When considering your penalty abatement request they’ll consider documentation like bank statements as part of their evaluation; working with a tax attorney can assist in gathering this data and filing the necessary forms.
If you find yourself unable to pay what is owed, the IRS may mark your account as “currently not collectible,” preventing further efforts at collection of what’s due.
In certain instances, they may offer a streamlined installment agreement depending on your financial circumstances and program requirements; for instance, they might only accept payments through direct debit if you own a small business meeting certain criteria. You can click here to learn more about small business tax concerns.
Interest
Though not required by law, the IRS can charge interest on tax debt. This applies both to failure to pay due taxes as well as late payment penalties and interest charges by collection agents on outstanding balances.
If it’s possible, paying your outstanding tax debt all at once would be optimal; otherwise, payment plans may be beneficial. A local attorney can help you devise a payment plan if needed. The IRS provides several payment plan options, including streamlined installment agreements which may help remove tax liens if eligible.
If interest charges are unfair or unreasonable, you can request reduction or cancellation through Form 843: Claim for Refund and Request for Abatement. If they reject your plea for relief they can appeal through the Independent Office of Appeals.
Some taxpayers assume the IRS shouldn’t charge interest when using an overpayment to offset liability. Although this is generally true, there may be exceptions.
Asset Seizure
If you don’t pay your tax debt, the IRS can seize both federal and state income tax refunds; vendor payments made to government contractors; COVID-19 saw them stop doing this often and may allow some or all of your refund to remain if financial hardship can be proven; also bank accounts or assets belonging to you could be taken over due to outstanding balances owed.
Make an effort to prevent the IRS from seizing your assets by filing Form 12277, Request for Currently Not Collectible Status with them and satisfying certain criteria.
Generally speaking, this option will only be considered if multiple payments have been made, your outstanding balance falls below $50,000, and payment can be completed within 60 months. You might even qualify for a streamlined installment agreement if paying by direct debit and fulfilling certain criteria.
Tax Lien
When you owe large sums of taxes, the IRS can start taking steps such as garnishing wages or seizing assets to collect them. Depending on your circumstances, tax resolution options may allow you to reduce balances while avoiding these serious consequences.
One option available to you is a streamlined installment agreement. In order to qualify, fill out Forms 9465 (Installment Agreement Request) and 433-F (Collection Information Statement). These forms ask for detailed financial data that will allow the IRS to assess whether you have enough disposable income to repay all debt within six years.
Partial Payment Installment Agreement: Another alternative is a partial payment installment agreement, where monthly payments will be made until your tax debt expires according to its statute of limitations and any remaining amount waived off by the IRS.
It may be beneficial if you cannot meet the terms of an offer in compromise or do not possess enough equity in your home to apply for homestead exemption; similar to direct debit installment agreement arrangements but with additional requirements and signed formal documents required from both parties involved.
