The penalty for non-payment is equal to half of one percent per month or part of a month, up to a maximum of 25 percent, of the amount still due. The penalty rate is reduced by half, to a quarter of one percent, while the payment plan is in effect. Interest and penalties are added to the total amount you owe. If you apply for an IA, the amount of time the request is pending delays or suspends the initial ten-year billing period.
An AI request is usually pending until an AI can be reviewed and established or until the request is withdrawn or rejected. If the requested AI is rejected, the charging period is suspended for 30 days. Similarly, if you don't pay your AI payments and the IRS proposes to cancel the AI, the collection period will be suspended for 30 days. Finally, if you exercise your right to appeal the denial or dismissal of the AI, the collection period will be suspended from the time the appeal is pending until the date the appealed decision becomes final.
Right now, you're probably wondering what happens if you can't pay taxes after you file a return. Well, it's not an ideal situation, but the IRS has a few options available to help you. You can set up an installment agreement, which allows you to make monthly payments on what you owe. It is also possible that a temporary delay in payment may be imposed on you if you can demonstrate that the payment would cause you excessive financial hardship.
If you can't pay what you owe, the IRS can also work with you to set up a compromise offer, which would pay off your debt for less than you owe. LITCs can represent taxpayers in audits, appeals and tax collection disputes before the IRS and in court. The IRS will ask you about your income and expenses, so be prepared to talk to them about how much money you earn or receive each month compared to what you spend. As stated above, the penalty for not filing the return is much higher than the penalty for not paying, so it's always best to file the return on time, even if you can't pay what you owe.
If you have less than the amount the IRS considers necessary for food, clothing, rent, transportation, etc., the IRS can also issue federal tax liens that can destroy your credit and make it difficult to sell a property or get a loan. If the IRS agrees to place your due balance accounts in this state, it doesn't mean that the balance will disappear. If you're having trouble paying your taxes, the best thing to do is to contact a tax professional directly to discuss your options. If you don't contact the IRS or work with a tax professional to resolve the situation, you run the risk of losing your assets or facing other involuntary collection actions.
If you can't pay in full, but you can make a payment every month to the IRS, an installment agreement (IA) is a great option. The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. We can offer you help if your tax problem is causing you financial difficulties, if you have tried to resolve your problem with the IRS and haven't been able to resolve it, or if you think that an IRS system, process, or procedure simply isn't working as it should. If you believe that you do not owe taxes or that the amount is incorrect, you can file Form 656-L, Commitment Offer (Liability Question).
If you notice that a payment you made hasn't been applied to your account, you can contact the IRS toll-free line at 800-829-1040 to ask the IRS to look up your payment. You can also request a transcript of the tax account that shows all the payments that the IRS has received in your account.