"There is nothing sinister in arranging one's affairs as to keep taxes as low as possible...for nobody owes any public duty to pay more than the law demands."
--Judge Learned Hand
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IRS Payment Options

Even if you can't pay your tax bill, go ahead and file your return on time. This way you'll avoid the IRS' failure-to-file penalty of 5 percent per month (up to a maximum of 25 percent) of your balance due.

Cash Payments
Installment Agreements
Offers in Compromise
Bankruptcy
Statue of Limitations

Cash Payments

You can pay by check, money order, credit card or direct debit payment. Do not send cash. Pay as much as you can to minimize your penalties and interest since they are based on your remaining tax liability.

- Check or money order. Write the full amount payable to the “United States Treasury”. On your payment, put your name, address, daytime phone number, SSN,tax year and type of return (example 2003 1040).

- Credit Cards. American Express Card, Discover Card, MasterCard, or VISA . Two companies are handling credit card charges for the IRS. Each company has its own fee schedule and each offers both phone and internet payment services. The convenience fee is announced during the phone call and you will be given the option of discontinuing. If you pay by credit card, enter the confirmation number in the upper left corner of page 1 of Form 1040. 

Official Payments Corporation 		Link2Gov Corporation
800-272-9829				888-729-1040
www.officialpayments.com		www.pay1040.com
877-754-4413 (Customer Service)		888-658-5465 (Customer Service)
- Direct Debit Payments. You must enroll in the debit program at www.eftps.gov prior to making a payment.

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Installment Agreements. If your tax bill is too large for a credit card, the IRS is willing to take monthly payments. If you've previously filed and paid taxes on time, your tax bill is less than $10,000 and you convince the IRS that you can't come up with that much money all at once, the IRS can't turn down your request. Your installment plan must pay off the tax due within three years. To get the program going, attach form 9465 Installment Agreement Request to the front of your tax return. You even get to pick your monthly payment amount and the day it will be due. Keep in mind that paying over time, even to Uncle Sam, will cost you more. The IRS charges a one-time $105 fee to process the payment plan (you'll be billed with your first payment). The user fee for low-income taxpayers and taxpayers who pay through a direct debit program is $43. The user fee for restructuring an installment agreement is $43. The IRS continues to add penalties and interest to your unpaid tax bill. But if your return was filed on time and you applied for the payment program before you got a levy notice, the penalty drops from 0.5 percent of the balance due each month to 0.25 percent rate when the IRS approves your request.

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Offers In Compromise. The IRS may be willing to accept an offer in compromise, a lump sum payment you can to pay that is less than the total amount of tax you owe. In these cases, the IRS gets some taxpayer money sooner than it would after years of costly collection efforts. The key is that the amount must reasonably reflect your ability to pay.

There are strict standard of living guidelines to follow. The paperwork must be filled out completely and accurately. The IRS is stepping up its efforts to weed out taxpayers who use the offer in compromise program to delay paying their bill.

Recently released statistics from the IRS show that for fiscal year 2003 (ended September 30, 2003), the IRS accepted only a small percentage of the offers. In total, taxpayers sought relief from $1.66 billion in tax debts but the IRS only accepted $244 million (less than 15%).

The IRS will review your financial situation and future income potential to determine whether your offer is appropriate. This program was designed only for extreme cases and very few filers qualify for the program under the terms. If you believe your situation does indeed meet the requirements, file form 656 Office in Compromise, form 433A Collection Information Statement and the $150 application fee. The IRS will determine your eligibility for this program. If approved, the $150 will go toward your new payment amount.

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Bankruptcy

When the allowable standards accepted by the IRS don’t fit your living standards, a bankruptcy might be an option. A decision might be made to force the IRS to accept smaller and/or more spread out payments than typically accepted in installment agreements, take advantage of the automatic stay (stops all collection action by all creditors including the IRS), or discharge (wipe out) IRS debt.

There are pros and cons to filing bankruptcy. And timing can be extremely important. It is very important to seek out an attorney that is very knowledgeable in bankruptcy and taxes. Also make sure you understand how the collection statute expiration date is extended.

Chapter 7 – liquidation of non-exempt assets and discharge of dischargeable debts for individuals.

Personal income taxes are dischargeable (wiped out) in Chapter 7 if each of the following statements is true:
  1. The tax year in question is more than 3 years prior to filing the bankruptcy
  2. The tax in question has been assessed more than 240 days prior to filing the bankruptcy
  3. The tax return for the year in question was filed at least more than two years prior to the bankruptcy filing
  4. The tax return in question was not fraudulent and there is no showing of willful evasion of payment of a lawful tax
  5. The claim is unsecured (if secured, the tax is discharged as to the debtor personally but the lien is still valid as to any property it has attached to).
Chapter 13 – offers a payment plan for individuals

Personal income taxes are dischargeable (wiped out) in Chapter 13 if
  1. The tax claim is unsecured and the taxing entity fails to file a timely proof of claim,
      OR
  2. Each of the following statements is true:
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Statue of Limitations

Information Coming Soon

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If you would like a tax professional to check your work or handle your Installment Agreement or Office In Compromise, contact Tax Savvy at 972-442-5226.

Tax Savvy
401-B South Birmingham Street
Wylie, TX 75098
972-442-5226
CheriPullen@TaxSavvy.biz

The information you obtain at this site is not, nor is it intended to be, tax advice. You should consult a licensed tax professional for individual advice regarding your own situation.