I have calculated my tax bill and I cannot afford to pay it… what do I do now?

File your return.  By filing your federal tax return with the Internal Revenue Service (IRS) even though you cannot afford to pay the taxes due, you are letting the IRS know that you want to do the right thing (i.e., pay your taxes) and are making yourself available to work with them to resolve the matter.

The IRS considers failure to pay your federal income tax a serious matter.  Although the IRS generally will not seek to put you in jail for failing to pay your taxes (unless you have a history of failing to pay your taxes for possibly multiple years and you have ignored other inquiries/efforts from the IRS seeking to resolve the matter), they will attempt to place a lien on your property if necessary.  The IRS will also penalize you for failing to file your return on time and charge you interest on the amount of unpaid taxes.  If you area already in a position where you cannot afford to pay the taxes due, you do not need to compound the problem by adding unnecessary penalties and interest on top of the original amount.  However, if you willingly admit to the IRS that you cannot pay the full amount due, they are more likely to work with you to develop a plan that will work for both parties.

If you believe you will be financially capable of paying the taxes you owe in the near future, the IRS has two payment options that can assist you:

  1. First is a simple extension, which is moving the deadline when the money is due out to a date in the future.  This extension should not be confused with filing a six-month extension to file your tax return, because with an extension to file you are still expected to pay an estimate of the taxes you owe by April 15.  The length of an extension to pay your taxes has to be negotiated with the IRS on a case-by-case basis.
  2. The second payment option that can assist with the timing of paying your taxes is establishing a monthly payment, where the IRS will allow you to divide your payment into equal amounts that you pay over the course of a few months.

With both of the above payment plans, the IRS will require you to pay the full amount you owe.  In addition, they will charge interest on the unpaid balance owed until you pay it off.  However, if you are not capable of paying your taxes in full, the IRS may allow you to work out an offer in compromise.  An offer in compromise is when the IRS evaluates your financial position, and based on that evaluation, determines that you are not capable of paying the full amount of tax due.  In this case, the IRS will “compromise” by accepting a lesser amount to satisfy the tax owed in full.  But the taxpayer must demonstrate that paying the tax in full will cause some form of financial hardship.

Can a legal professional help me obtain an offer in compromise?

A tax lawyer/attorney can evaluate your financial situation to see if an offer in compromise is an option the IRS will consider for someone in your position.  If you complete the short evaluation form at http://www.offerincompromiselawyer.com/Tax-Relief.php, a tax professional will review your situation free of charge.  There is no obligation to you for this review and the entire process is 100% confidential.  Please seek professional help today so you can may an informed decision regarding your tax situation.