Understanding IRS Payment Plans: A Comprehensive Guide
The Internal Revenue Service (IRS) does offer payment plans for taxpayers who are unable to pay their full tax debt in a lump sum. However, understanding the options and requirements is crucial. This guide will explore the payment plans available from the IRS, their conditions, and some alternative options like bankruptcy.
Introduction to IRS Payment Plans
When faced with a tax debt that you cannot pay immediately, the IRS might offer a payment plan. This allows you to pay your owed taxes over time, easing the financial burden. It’s important to note, however, that the IRS has strict conditions and penalties for those who default on their payments.
How the IRS Payment Plan Works
Option 1: Automated Payment Plan (APP)
The Automated Payment Plan (APP) is an option for taxpayers who can afford to make installment payments. To apply, you can use the IRS’s online payment plan service:
Note the application must be completed accurately, as any errors could delay the process.
The monthly payment amount is calculated based on your income and expenses, ensuring it’s manageable.
There are no application fees, and the plan is generally simple to set up.
Option 2: Streamlined Payment Plan
The streamlined payment plan is ideal for those who can make consistent, immediate payments. You can apply for this plan online through the IRS’s website if your total balance is $10,000 or less and you can afford to pay it off within 120 days.
Option 3: Extended Payment Plan
If your balance is higher than $10,000 or you need more than 120 days to pay off your debt, an extended payment plan may be suitable. This option allows for larger monthly payments based on your financial situation.
Conditions and Penalties
While payment plans can be a relief, there are often conditions and penalties that must be adhered to:
If you miss a payment, the IRS can impose penalties and interest, which can significantly increase your debt.
If you file false or incomplete information or fail to file taxes, the IRS may take more extreme actions, including legal proceedings and the confiscation of your assets, which could then be sold at auction.
Defaulting on your payment plan can result in a levy on your income or other income sources, like Social Security benefits.
Bankruptcy as an Alternative
Dischargeable Debt
In some cases, tax debt might be discharged in bankruptcy. However, this is not an automatic process and depends on your financial circumstances and the nature of the debt:
Some unpaid taxes are dischargeable in bankruptcy if you file within certain time limits and meet the income requirements.
For individual taxpayers, it is generally not possible to discharge federal taxes through Chapter 7 bankruptcy.
Chapter 13 bankruptcy might be an option for taxpayers who have a steady income but cannot afford to pay the full amount of their tax debt without pain.
Seek Professional Help
Bankruptcy is a complex process, and it’s advisable to consult with a specialist who can guide you through it. The article 'Discharge Taxes in Bankruptcy with Expert Help of a Specialist' provides more detailed information and advice.
Conclusion
Whether you choose a payment plan from the IRS or consider bankruptcy, understanding your options is crucial. The IRS offers various flexible payment plan options for those facing tax debt, but it’s important to comply with their rules to avoid penalties and further legal actions. For more detailed information, consider consulting with a professional who can provide tailored advice.
For more information, see the blog article on our law firm’s website.