| Installment Agreements
Whether you call it an installment agreement, payment agreement, payment option or a payment plan, the idea is the same — you make payments on the tax you owe. That sounds like a good deal, but you can save money by paying the full amount you owe as quickly as possible to minimize the interest and penalties you’ll be charged. For those who cannot resolve their tax debt immediately, however, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts. Taxpayers wishing to pay off a tax debt through an installment agreement, and owe: - $25,000 or less in combined tax, penalties, and interest can use the Online Payment Agreement (OPA) or call the number on the bill or notice (have the bill or notice available, along with the social security number). A fill-in Request for Installment Agreement, Form 9465 (PDF), is available online that can be mailed to the address on the bill.
You will receive a written notification telling you whether your terms for an installment agreement have been accepted or if they need to be modified. | | Penalty Abatement Every year, the IRS imposes penalties on millions of taxpayers. The most common penalties are assessed for failures to file a tax return, failure to pay a tax owed, and underpayment of taxes. These penalties can dramatically increase the amount you owe. In addition, the IRS will charge interest on penalties.
Penalties can be as high as 75% of the original taxes owed. Oftentimes, a taxpayer has enough money to pay the tax owed but cannot pay the liability in full because there is a large amount of accrued penalties and interest.
Relief from, or abatement of, penalties is possible. A taxpayer must demonstrate that the circumstances giving rise to the penalty were due to “reasonable cause” and not “willful neglect” of the taxpayer. Careful presentation of the facts and circumstances surrounding the cause for the penalty is essential to obtaining relief.
| | Discharging Taxes in Bankruptcy There may be situations in which all other collection alternatives won't work. In those cases, certain taxpayers may obtain relief through bankruptcy. Bankruptcy can help you contest the amount of tax at issue and, if properly timed, it can provide a much needed fresh start. Generally, all taxes are dischargeable in bankruptcy, subject to the following exceptions: - Taxes are non-dischargeable if the return was due less than three years prior to the filing of the bankruptcy petition.
- Taxes are non-dischargeable if assessed less than 240 days prior to the filing of the bankruptcy petition.
- Taxes are non-dischargeable if the return was not filed, or was filed less than two years prior to the filing of the bankruptcy petition.
When a bankruptcy petition is filed, an "automatic stay" arises, and the IRS must cease all collection efforts. In bankruptcy, the IRS can either be a secured creditor (if it has filed a tax lien), or it can be an unsecured creditor (if it did not file a lien). It derives that, like any other creditor, the IRS can be partially secured or partially unsecured. | |