It’s October. My favorite time of the year. The holidays are coming fast and will be here before you know it. The cooler weather should be here soon. Plus, October is the month that I first met my wife, now a long, long time ago (but she still looks as beautiful as the day I met her).
October is also the last month of the official tax filing season. The extension for individuals expired Oct. 15. Of course, many people who finish their tax returns at this time of the year owe money. Yes, that sucks for them. It sucks even more when they do not have the money to pay that tax bill.
This can happen for many reasons. I will give you a few examples of how people get into this pickle:
- They changed employers and their new Form W-4 did not have enough federal withholding taken out.
- They could have changed employers and now they work for someone who pays them on a 1099-NEC as an independent contractor (this is a whole separate issue on whether this is appropriate or not). Therefore, there is usually not any federal withholding paid into the IRS.
- Business could have been doing well before and now it is not when the tax is coming due.
- They are selling a property with a large taxable gain, but not getting any cash out at the sale.
So, what is a person (or business) to do? Well, fortunately there are many options to choose from; however, please note that the options can only apply if your facts and circumstances allow for it.
Most people will fit into the bucket that allows them to fully pay their tax, penalties and interest over a payment plan. This is typically paid over 72 months. Depending on the dollar amount you owe, you may not have to provide any forms or documents to set this up.
It may be that you can pay some payment but not the full payment that allows to pay it in full. The IRS can allow you to enter into a partial payment plan. If this is the case, the IRS is going to need Form 433-A for individuals or 433-B for businesses along with A LOT of documentation. They are going to vet and confirm the information you provide, so please be honest.
If you do not have any (or much) equity in assets and you do not make a lot of money, you could possibly qualify for Currently Not Collectible (CNC) Status. This is where the IRS basically says you cannot afford to pay (again, based on your facts and circumstances) and they set your account off to the side until time runs out or your situation changes. Forms and documentation are also required here.
Finally, if you do not have any (or much) equity in assets and you do not make a lot of money you could possibly qualify for an Offer-in-Compromise (OIC). This is where you settle for less than what you owe. But again, your personal situation has to allow for you to qualify.
Please note, the IRS does not “negotiate.” They are not the credit card company that you call and ask if they will take $6,000 cash today on your $10,000 balance due. The IRS uses a mathematical formula using the forms they have created to see what option is best for your situation.
In the current climate of the IRS, they are answering less than 10% of all calls. Yes, their customer service stinks. Do your best to call early (some lines open as early as 7 a.m. EST) and often.
If all else fails, please contact a licensed professional (CPA, EA, or attorney) to help you with getting you the help you need. Tax professionals have a separate phone they can use to get through to assist you in getting your case resolved. Please let me know if you have any questions.
Dan Henn, CPA, is a local certified public accountant. His firm specializes in IRS audit and collections representation, real estate and medical taxation, year-round tax planning and tax preparation in Rockledge. You can contact his office at 321-684-7800 or at firstname.lastname@example.org.
This article first appeared in Florida Today.