You're the Turnip
by Bob Williams
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A lot of folks have felt roughed up by the economic turn of events over the past few years. And although things are definitely getting better, some taxpayers still find themselves in pretty precarious financial territory. It can seem that the harder they run, the behinder they get.
Granted, the IRS is not noted for being a charitable organization. But the agency does have methods available to help taxpayers who are delinquent in paying their income taxes get their account straightened out.
My grandmother used to say, “You can’t get blood out of a turnip,“ and that’s true. In this case, your tax bill is the blood; YOU are the turnip. But veggie characterizations aside, if you have unpaid tax-due debt, you need to get that resolved. It can impact your credit rating and lead to penalties that may put you in an even deeper hole.
One of the most-used methods for paying off delinquent tax debt is the installment plan. Just like a car loan or the old department-store payment plan, the IRS will set up a payment schedule with you for a delinquent tax debt. If you owe less than $50,000 to the IRS, you can apply for an installment plan online. You can pay your monthly amount or you can set it up so it comes out of your paycheck automatically.
One of the important points here is to complete the payment schedule. If you simply quit sending payments before your tax bill is settled, you could set off a train wreck of penalties and interest – not to mention other collection actions. The IRS gave you the chance to pay off your tax bill a little at a time; you probably won’t get a second chance if you quit.
Oh yeah – that “other collection actions” business? The IRS can legally seize property and bank accounts if they will help settle the debt. And they can garnish wages as well, so think twice about reneging on any deal with the IRS.
Offer in Compromise
One of the least-known methods for clearing tax debt is called an Offer in Compromise. Basically, it works like this: If a taxpayer owes back taxes, but has no hope of paying it off in the foreseeable future, the taxpayer can offer to pay a lesser amount instead. Naturally, a tax debt of, say, $1,000 won’t be paid off with a $50 check. But the IRS generally approves an Offer in Compromise when the amount offered represents the most they can collect within a reasonable amount of time.
There are more than a few requirements and hoops to jump through en route to an Offer in Compromise. The big one is that you cannot be in an open bankruptcy proceeding to qualify. But the IRS does have a program available online that will help you determine if you might qualify.
If you do, you can submit Form 656-B, Offer in Compromise, along with a $150 application fee and an initial payment on the debt. The form instructions carry a detailed explanation of the whole process, so read them carefully.
We certainly hope you don’t need any of this information. But if you do, we also hope you’re feeling a little more like yourself now – and a little less turnip-ish.
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