What if I Can't Pay My Tax Bill?

(2 of 8)

What if I Can't Pay My Tax Bill?

Receiving a bill from the IRS

If you do not pay the full amount of tax that is due, you will receive a bill from the IRS. This bill notes the unpaid tax due and any penalties and interest also due. It is in the taxpayer’s interest to pay the amount due, or at least to pay some of it, or to arrange a payment plan. This will lower the amount of interest and possibly penalties.

What if the bill is wrong?

If you think the bill is wrong, you should contact the IRS as soon as possible at (800) 829-1040 or visit a local IRS office. To help you correct the problem, you should have handy a copy of the bill and any supporting documents to help your case. Supporting documents could include records, past tax returns, canceled checks, previous correspondence with the IRS, etc. You will need to explain exactly what you think is wrong in the bill. If you are communicating by mail with the IRS, send copies rather than originals of any documents you include. If the IRS determines in your favor, it will adjust the bill and issue refunds if they are applicable.

What options do I have?

But if you do owe money, you need to find a solution. Here are some options:

• Set up a payment plan with the IRS. You will still have to pay interest and possibly some penalties along with the amount on the bill. This is a very common option.
• If the amount owed is small and you anticipate getting a refund the next year, you can let the IRS take that refund to pay the debt. This is not usually a wise option, because interest and penalties can build up in the meantime.
• Borrow from your financial institution or from other people.
• Make an offer in compromise with the IRS. With this option, the IRS will accept a much smaller amount. This option is not an easy one to get, though. It requires proof that you are undergoing hardship. File Form 656, Offer in Compromise.
• Ask the IRS to declare the debt uncollectible due to economic hardship on your part. The IRS will suspend it during this time, but interest and penalties will continue building up. This is not the same as having the debt canceled.
• Since penalties are not actually required by law, you can request that they be removed (abated). You can make a case to the IRS that circumstances caused you to be unable to pay the original tax. Examples can include getting wrong advice from the IRS (keep records of your correspondences), errors by your accountant, catastrophes that destroy your records, or incapacitation. You can file Form 843, Claim for Refund and Request for Abatement, to bolster your case.
• You can wait for the statute of limitations on the collection effort to expire. However, during this time, the IRS can still keep any tax refunds you are otherwise entitled to, and it can garnish your wages.