In recent years, the Internal Revenue Service (IRS) has been more amenable to working out late tax payments (usually by installment agreements.) But you have to address the problem up front, and don’t keep Uncle Sam waiting on his tax money.

Back in 2011, the IRS rolled out its Fresh Start program, geared toward giving late-paying Americans a path back to paying off their tax liabilities.

“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said at the time. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”

The IRS particularly focused on the following changes:

  • Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
  • Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
  • Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
  • Creating easier access to Installment Agreements for more struggling small businesses.
  • Expanding a streamlined Offer in Compromise program to cover more taxpayers.

From a taxpayer’s point of view, it’s great to see the IRS offering more options for Americans struggling to keep up with their tax payments.

But if you do fall behind, don’t just stand there – take the following steps to resolve your debt with Uncle Sam.

Always File Your Return

If you owe the IRS an amount that you cannot pay in one lump sum with a return, it is important to file the return anyway, says Lawrence Brown, an attorney in the office of Brown P.C. in Fort Worth, Texas.

“This will reduce some of the penalties,” he explains. “Occasionally clients tell us that they did not file a return because they were unable to pay the tax due. This usually causes them to pay penalties that are significantly greater than they would have paid had they at least filed the return.”

IRS Problems (Especially Collections Issues) Do Not Get Better with Age

Brown says it is always best to deal with these issues up front and in a proactive manner. “The IRS will not immediately pursue you for delinquent tax penalties and interest,” he says. “In many cases it will take months before the IRS begins collection efforts.”

At first, collection efforts can seem benign, consisting of only computer generated letters. At some point, however, the IRS will begin very aggressive collection tactics, including wage levies in which the IRS contacts your employer advising that you have delinquent tax liabilities and that any wages that would be paid to you should be paid to the IRS. “In short, once the IRS begins aggressive collection activity, your reputation can be damaged and you can be crippled financially,” Brown adds.

Go For an Installment Agreement

The IRS is usually quite amenable to installment agreements or compromise offers. Under an installment agreement, a taxpayer pays the amount due over a period of time. An offer in compromise involves the taxpayer paying in one lump sum, an amount that is less than the amount actually owed. Whether the IRS will accept an installment agreement request or an offer and compromise depends largely on your financial condition. If you have the money or assets to pay the liability, the IRS will not compromise, nor will they allow an installment agreement.

Note that when you submit a request to the IRS for a payment plan, you will have a better chance of success if you:

  • Let the IRS know you’ll pay the debt off within five years – but ideally within two years.
  • Aim higher. The monthly payment you negotiate with Uncle Sam should be equal to or higher than what the government believes it can garner from you from a negotiated agreement initiated by the IRS.
  • The regular (usually monthly) tax payment you introduce to the IRS should be tied to existing IRS criteria. For example, you should subtract household expenses from your total income. Then cut a check for the difference to the IRS.

Stick to Your Payments

Do not fail to make your payments on time to the IRS. If you violate the terms of your payment arrangements, the IRS will attach and seize property that you own, including bank accounts and even the mortgage on your home. However, if you speak with them in the event that you are having problems making your payments, you should be able to work through it. Being up front with the IRS is the key – they do not like surprises.

Get Professional Help – but Beware

A professional representative can usually be of significant help in negotiating the most favorable possible compromise or installment agreement. That said, beware the “pennies on the dollar” firms or 1-800 number firms that advertise on late-night television, Brown says. “In many instances these firms will simply take a client’s money and perform no or minimal services,” he explains. “Many of these firms have been prosecuted in their states of origin for unlawful and deceptive business practices.” If you are interested in obtaining representation, interview two or three potential firms in your city,” he advises. Make sure that IRS tax controversy and IRS collection resolutions are the backbones of their practices. Many attorneys and Certified Public Accountants (CPAs) do tax planning but rarely interface with the IRS. It’s important that your representative has deep experience negotiating with the IRS in back taxes payment cases.

The Bottom Line

Nobody is saying that the federal government is getting all warm and fuzzy about late tax payments. However, the IRS does offer more programs than ever before for Americans to get back on track with their taxes. The key is to act quickly and find a resolution as soon as possible.

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