Tax Troubles? You’ve Got Options
*This publication is only intended to be used for general informational purposes. Consult a tax professional for the most current data and/or personal advice.
Requesting an Extension
Need to postpone your tax returns? To request an extension to file, you must complete Form 4868 and file it with the IRS by the April deadline for the year your tax return is due. This gives you an automatic six-month extension.
To get a current copy, visit your district office, call 800-TAX-FORM or visit www.irs.gov to download a copy. You must still pay at least 90% of the tax due by the deadline or the IRS will fine you 1/2 of 1% of the taxes you owe per month until you pay.
When you file a Form 4868 with the IRS, the form states will automatically grant a extension as well. You may need to include a copy of your federal return as well as a copy of Form 4868 with your state return. If you still need or want more time, you can request a second extension from the IRS by filing Form 2688. You must file this form by August 15 and must state “good cause” for needing more time. The second extension is granted at the discretion of the IRS.
What if you haven’t filed?
Even if you can’t pay the tax you owe, it is still better to file a return. It is a crime not to file a tax return if taxes are owed. According to the IRS a “willful failure to file” a tax return is a misdemeanor that can get you up to a year in jail and a $100,000 fine for each year of non-filing. There is no criminal penalty if you file, but withhold paying the taxes. You will owe interest and penalties, but you can’t be criminally fined or sent to jail.
What if you can’t pay what you owe?
Pay as much as you can and immediately contact the IRS to explain your circumstances. The IRS offers an Installment Agreement plan to those who owe taxes but do not have the funds to pay in full. Interest and possibly penalty fees will be added to your balance, as well as a one-time user fee that is currently $225, though you will pay less if you opt for a direct-deposit option. To apply, complete Form 9465, Installment Agreement Request.
Offer in Compromise… If the IRS decides it will be unable to collect the debt in full, it may accept an Offer in Compromise to settle unpaid tax accounts for less than the full amount. The amount you offer must reflect your maximum ability to pay, taking into account all your assets and future income. You can get Form 656, Offer in Compromise, and Form 433A, Collection Information Statement for Individuals, plus additional information regarding the filing procedure from the IRS website or at any IRS office. There is a non-refundable $186 fee for the Offer in Compromise application.
What if you take no action to pay?
If you do not take some action to pay your bill, the IRS may take any of the following actions:
- Liens – Once the IRS assesses the liability, sends you a notice and demand for payment, and payment is not received within 10 days of the notice, a lien may be created for the amount of your tax debt. By filing a Notice of Federal Tax Lien, the Government is providing a public notice to your creditors that the Government has a claim against all your property. This notice will appear on your credit report and could affect your ability to obtain credit. If paid in full, The IRS will release your lien within 30 days.
- Levies – A levy is one method the IRS uses to collect tax that you have not voluntarily paid. It means they can, by legal authority, take property to satisfy a tax debt. Levies can be made on property like your house, car or boat, or on property that is yours, but is held by third parties like wages, state tax returns or bank accounts. A levy is different from a lien. A lien is a claim used as security for the tax debt, while a levy is used to actually take the property to satisfy the tax debt.
Your rights as a taxpayer
The following is a summary of Publication 1, Your Rights as a Taxpayer. It explains some of your most important rights, including your right to be treated fairly, professionally, promptly, and courteously by IRS employees.
- When you do not agree with IRS decisions you have the right to an administrative review with the employee’s manager. You may represent yourself or you many have an attorney, certified public accountant, enrolled agent or any person enrolled to practice before the Internal Revenue Service represent you.
- You have the right to request that the IRS transfer your tax case to another IRS office. You have the right to ask for and receive a receipt for all payments you make. You also have the right to receive copies or confirmation of all contractual arrangements that you make with the IRS.
- The Problems Resolution Program at the IRS provides an avenue to help resolve your problem when you believe that: 1) your account information is incorrect, 2) a significant matter or event is not being considered in your case, or 3) your rights as a taxpayer have been violated.
Revised February 2018.