YOU CANNOT PAY UNCLE SAM… WHAT’S NEXT?
What if, one day, you can no longer pay Uncle Sam? What should you do?
Several variables determine the amount of tax an individual pays every year. In some instances, changes in these factors can lead to a much lower – or higher – tax bill than an individual expects. Good thing the Internal Revenue Service has provided some alternatives to those who face the dilemma of paying higher taxes.
But first things first: How does the IRS collect taxes? After the government agency receives the return and records a taxpayer’s balance, your file will be considered a tax delinquency account and sent to the collections department. The collections then will send you a Computer Paragraph (CP-14) notice, which informs you of your balance due plus applicable interest and penalties. In the event you fail to settle your balance within a month, the department will send CP-501 and 504, urgent notices of balance due. And if you fail to pay your taxes within four to six months, you will be given a final notice of intent to levy. Normally, the process is accelerated for businesses or payroll taxes. Entities may send a request letter to the IRS to extend the process for 45 days for every notice you receive.
What if you fail to settle your taxes during the automated notice phase, what will happen? Your file will be endorsed to the IRS Automated Collection System. This branch is authorized to collect most of the unpaid taxes, require submission of unfiled tax returns, and impose taxpayer income and assets. They will contact delinquent taxpayers through telephone and email.
The ACS will retain your account for up to 10 years, until the statute of limitations runs out on your tax debt obligation. But at some point, your case may be assigned to a field officer, which happens when it has garnered sufficient number of points to warrant human intrusion.
Is it game over for the delinquent taxpayer? Definitely no. There are some possible solutions to resolve tax delinquencies:
Request an Extension
If your Form 1040 reflects a balance due higher than the money you have available, you can submit IRS Form 4868 via snail mail or email on or before the deadline. The said extension can render additional time to accumulate cash to pay off the balance. However, it will generate interest and penalties.
Speak with Revenue Officers
You may express doubt about the accuracy of the tax bill. IRS officers are prohibited from collecting unpaid taxes unless the numbers on the notices are correct. If it does not work, speak to a manager to get in touch with the Taxpayer Advocate Service. Or, you can ask the collector to remand your account to uncollectible or significant hardship status. You may request to postpone it for at least one year.
You can set up a 60-month payment plan to your collector, provided the tax balance is lower than 25%. But it is advisable not to talk to the collector on the first call. Why? That way, you can collate all of your financial data, call them back, and negotiate a payment scheme. In case the collector won’t budge on the terms, end the phone conversation politely and speak with another officer or a supervisor, if needed.
Another tip: Find an excuse to get off the phone, but never lie. Sounds tricky, right? Yes, but lying will go nowhere. And you can be jailed for that. Instead, request to send your file to a local IRS offices to reduce the odds of your salaries or assets being levied.
Write a Compromise Offer
If your current financial situation won’t improve anytime soon and you have no means to settle your taxes, make an offer in compromise. This will enable you to pay your tax debt for possibly much lower than the amount you owed. Normally, the IRS accepts around 25% of all Offers in Compromise. But the final offer may vary from what you initially requested.
Also, submit Form 656 for Offer in Compromise, as well as Form 433-A and 433-B. The latter provides information regarding your financial situation. Aside from these forms, you need to provide other financial documents, including pay stubs, investment, banks, and other financial statements.
File for Bankruptcy
Declaring bankruptcy is one fail-safe method of stopping all tax collections. A Chapter 7 can wipe out all your tax debts based on certain conditions, while Chapter 13 plan can obtain an affordable payment for you should everything fail. When you file for bankruptcy, bear in mind that it will hugely affect your credit rating. And, bankruptcy can only cancel income taxes, not other types of taxes.
If you cannot pay Uncle Sam, do not worry. The alternatives are there to help you. All you need to do is employ a thorough planning and just be honest with your finances.
Global Stock Market Goes Digital
Steps to Attain Financial Security before Turning 30
Securing Long-Term Care
Divulging Secrets to Financial Planning
Introducing, the Key Players in Forex
Characteristics of a Financial Statement
POPULAR FOREX DEFINITION
|08:00||Prelim Machine Tool Orders||Mar|
|10:00||New Yuan Loans||Mar|
|13:00||MPC Member Andy Haldane Speaks|
|15:00||MPC Member Silvana Tenreyro Speaks|
|16:30||Overview of business prospects, according to the Bank of Canada||1 quarter|
|16:30||Bank of Canada Interest Rate Decision||1 quarter|
|19:00||FOMC Member Eric Rosengren Speaks|
|19:01||10-y Bond Auction||Apr|