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What to do when you owe the IRS?

What to do when you owe the IRS?

Owing the IRS is not what an American citizen hopes for, but there comes a time it happens, and might be out of your hands. The consequences are flexible at first, but the tail is hard. That is why this article has the smartest way of dealing with this situation by yourself. 

The IRS deals with debtors the same way regardless of the size of their debt. If you owe them even a trifle amount, it is best to go about it the right way. Usually, you can hire a financial tax advisor to run your tax figures. Okay, here are things to do when negotiating with the IRS over your debt. 

Take an Installment Agreement

Taxpayers can go for an installment payment where they agree with the IRS on a specific amount paid periodically. The size of the debt and how soon you can cover it influence the agreement. However, you may not want to take an installment agreement if your debt can be canceled in 4 months. 

Here are some info you'll need for the process;

  • You'll need $149 if you're using an online portal and $31 for electronic payment. You can register as a low-income earner on Form 13844 to qualify to pay $43.

  • Also, you need to complete the online form or Form 9465.

  • You'll submit $50,000 or less as an installment agreement fee.

The upside to the agreement is that each time you comply with the payment, your debt reduces by 0.25% per month until you can balance up. The interest charge at the federal level is 3%. However, if you fail to honor the agreement, Uncle Sam will cancel it.

Take a Suspension of Collection Activities

Those already in recession or will be in recession for paying taxes can file for the financial hardship program. The program sees your account under currently-not-collectible status until you become financially buoyant. To qualify, the IRS will investigate your financial status and conclude. 

Remember that the program does not forgive what you owe but is just a break for you to get back on your feet. The situation prevents the IRS from seizing your assets or touching your money. But it is still in the IRS's palm to freeze your account. Here is how to go about the process.

  • The process is available by phone or via online form.

  • The IRS will issue you a Collection Information Statement form called Form 433-F. 

  • You'll provide proof of your financial situation, including evidence of assets, income, and expenses.

  • The process is free.

  • You'll pay a monthly fee of 0.5% on debt.

The downside is that you only have 120 days to cover your balance, but you can avoid the payment by applying for short-term extensions. However, the agreement does not charge interest or penalties for late payment.

Take a Penalty Abatement to Reduce Your Tax Bill

The IRS might also consider waiving your penalties by applying for a first-time penalty abatement program. You can qualify for the program if you have never taken it on your account within three years of filing tax returns or file extensions. In addition, you must also have never made any tax dues agreement. 

However, those not qualified in the first phase can apply for penalty relief by stating a reasonable cause. Also, here are some qualifications criteria to keep in mind:

  • You went through natural disasters like fire, disasters, and other violent weather conditions.

  • You can't find your previous tax or financial records.

  • You or your loved one face a severe health issue or death.

  • If the IRS sends you an incorrect written message.

  • You'll fill out Form 843, named Claim for Refund and Request for Abatement. 

  • Attach the written notice with the form, including the penalties and taxes. 



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