In all my travels, I still haven’t found a creditor with more legal power to collect unpaid money than the IRS. (Notice I said “legal?” Of course, your local loan shark has Guido and his thumb-screw machine, etc., available to convince folks to pay their debts).
So, if you owe the IRS and can’t pay immediately, you have a few options.
Option 1, pay with a credit card and then pay off the credit card over time. The benefit? If you fall on hard times and can’t pay the credit card companies, it results in a bunch of annoying phone calls and not much else when it comes to collection efforts. (They do hit your credit rating pretty hard, too). The downside is the average credit card interest rate is much higher than what the IRS charges ... usually.
Option 2, installment agreement. The IRS has a really great program you can usually automatically qualify for. You have to be current on all tax return filings, and owe less than $50,000 (tax, interest, and penalties). You call 1-800-829-0115, and be prepared to be on hold for up to an hour. Eventually, you will talk to a friendly IRS person and they will ask some questions, getting to the point of asking you how much you can afford to pay each month. Tell them the smallest amount you know you can always pay. (Remember, other than Guido, the IRS is the worst possible creditor if it starts coming after you for not making the monthly payments). Pay extra whenever you can, and the IRS will also grab any refunds you have coming each year. Eventually, you will pay the entire IRS debt and then you’re free!
Option 3, offer in compromise. This is a tool of last resort. It allows you to settle your tax debt for less than the full amount you owe. This requires several steps to make sure you’re eligible. Some of the things the IRS looks at is if you can’t pay the debt owed to the IRS without creating a severe hardship; if your current and future expected income is too low to support being able to pay the entire debt; if your expenses (such as special medical treatments, etc.) are so high there isn’t enough left to pay the entire debt; if financial position (assets minus other liabilities) is too low that if you liquidated some assets you wouldn’t be able to pay the entire debt. There are two ways to pay such a reduced amount, lump sum cash (actually spread out over no more than five payments) or periodic payments under an installment agreement.
There you have it. More options than you thought? The worst thing you can do when you owe the IRS is to ignore the agency. In that case, Guido might end up being nicer than the IRS!
Did you hear? Proverbs 22:7: “He who gets into debt is a servant to his creditor.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. He’s on the web at BullisAndCo.com and on Facebook.
