You Owe the IRS!
Now what do you Do?
Let’s Talk About Your Options!
George and Shirley came to see me to complete their tax return. They had been referred to me by another client of mine.
George and Shirley had been blessed to have great and stable jobs. Even better, Shirley won a contract to provide support services to a government contractor. As they had never run a small business, they were referred to me to help them. Unfortunately they waited until 2015 to contact me as opposed to 2014 immediately after she won the contract.
The good news was winning the contract, the bad news was they owed more taxes than they expected. I explained through tax planning we could have avoided the situation if they had contacted me prior to year end last year. With that not happening, there were several options open to them.
Their options were:
- Pay the balance due in fall
- Get a loan to pay the balance
- Borrow from retirement accounts
- Offer in Compromise
- Currently Not Collectible
- Installment Agreement
- Paying the loan in full or borrowing from a lender or from their retirement were options they either couldn’t do or were unwilling to do.
- An Offer in Compromise allows you to offer the IRS a lower amount than is currently owed. Because of their income and assets, George and Shirley do not qualify for the Offer in Compromise.
- Currently Not Collectible allows you to delay collection action if you can prove that you don’t have the income or assets to pay the debt. George and Shirley couldn’t quality because of their income and assets.
- Bankruptcy was also an option but the tax debt was too new to be considered and they did not want to affect their credit.
- The last options available were an Installment Agreement (IA). With an IA you agree to pay the IRS a set amount monthly until the debt is paid. There are three options with installment agreement; each depending on the amount due.
If you owe the IRS less than $10,000 you qualify for the Guaranteed IA. Your minimum acceptable payment is $25 a month debt is paid. Certain qualifications must be met to qualify, these include but are not limited to owing only income taxes and no other types of taxes; not able to pay taxes immediately out of savings or other means, have not had an IA in the last 5 years and able to pay the tax fully within 3 years (36 months).
If you owe more than $10,000 but less than $25,000 you may qualify for the Streamlined IA. Like the Guaranteed IA, you are not required to fill out a personal financial statement and can setup a payment plan even if you have the means to pay the tax liability in full. Additional qualifications include filing all returns on time, paid in full during the payment period. Also, the tax liability must be paid within 5 years (60 months) or before the Collection Statute Expiration Date (CSED) which is a ten year period from the tax assessment date.
If you owe more than $25,000 you’ll work with a revenue officer who’ll require you to complete and submit personal financial statement with supporting documentation. A decision will be made based on your numbers as to how much you can pay. The IRS will compare your monthly income and your monthly allowable expenses and the difference is the amount the IRS will expect you to pay. You’ll pay this amount until the debt is paid in full or until you reach the CSED. The IRS may ask you to authorize an extension of the CSED in order to qualify for this payment plan.
George and Shirley owed slightly more than $25.000 so I suggested they pay an amount that brought them below $25,000 so they could qualify for the Streamlined IA. As such they were able to negotiable a monthly payment that they could live with!
Additionally I immediately began reviewing their personal finances and business income for changes we could make now so they wouldn’t owe in the future. This was ultimately a good outcome for them. What about you?
If you find yourself owing the IRS and want an open and honest discussion about your options, schedule an appointment at THIS LINK and come to see me. Don’t put it off…it will only get worse.
Let’s beat the IRS together….Legally.