What to Do if You Cannot Pay Your Taxes
By: Patricia T. Henssler, C.P.A.
The Henssler Financial Group Position Paper

If you have to pay at this year's tax filing deadline and cannot pay the full amount that you owe, you should still file your return by the due date and pay as much as you can. While you will incur late payment penalties, you will not incur late filing penalties.

You will receive a bill from the IRS for the remaining taxes due. At that time, you should again pay as much as you can. You will probably receive another bill before the IRS insists you set up an Installment Agreement to pay the remaining tax due.

You can charge your taxes on your American Express, MasterCard, Visa or Discover Card. To pay by credit card, contact one of the service providers by either telephone or web site listed below and follow the instructions. The service providers charge a convenience fee based on the amount you are paying. Do not add the convenience fee to your tax payment.

If this is not a good option for you, the IRS may allow you to pay any remaining balance over time in monthly installments through an Installment Agreement or possibly even settle for less than the full amount owed through its Offer in Compromise program. Do not count on this program if you have any available assets. It takes a long time to get an Offer in Compromise accepted, and you must have no means, and no future means of paying off your obligation, before this is considered by the IRS.

To see if you qualify for an installment payment plan, attach a Form 9465, "Installment Agreement Request," to the front of your tax return. The IRS has streamlined the approval process if the amount owed is not more than $25,000 and can be paid off within a five-year period. Be sure to show the amount of your proposed monthly payment and the date you wish to make your payment each month.

The IRS charges a $150 fee for setting up an installment agreement. You will also be required to pay interest plus a late payment penalty on the unpaid balance. This penalty, usually 0.5 (one half) percent of the balance due per month, drops to a 0.25 (one quarter) percent rate when the IRS approves the installment agreement if your return was filed on time and you did not receive a levy notice from the IRS.

Besides possibly qualifying for the reduced late payment penalty, you have another reason for filing your return by the due date: You avoid the late filing penalty of 5 percent per month of the balance due. Paying as much as you can when you file your return will reduce interest and penalty charges.

If you find that you cannot possibly come up with the money to pay your taxes, even through an installment plan, you may apply for an Offer in Compromise to settle your tax debt for less than the full amount owed. The IRS will review your financial situation and future income potential to determine whether your offer is appropriate. Send Form 656, "Offer in Compromise," and Form 433A, "Collection Information Statement," to the IRS to determine your eligibility.

The IRS web site at www.irs.gov has interactive sections to help you determine your eligibility for an installment plan or an Offer in Compromise. For more information about filing and paying your taxes, refer to Form 1040 or IRS Publication 17, "Your Federal Income Tax." You may request a copy of IRS forms or publications by calling 1-800-TAX-FORM (1-800-829-3676) or download them from www.irs.gov. Taxpayers needing Forms 9465, 656, 433A or any other federal tax form should act soon to be sure they have the item in time to meet the April deadline. If you would like further information regarding this topic or any other tax related issue, please contact The Henssler Financial Group Tax & Accounting Division at 770-428-4025.