You didn’t realize that you had made a mistake when calculating your income taxes until you got a letter from the Internal Revenue Service (IRS) informing you of underpayment or of an upcoming audit. Now, the IRS claims that not only do you owe thousands of dollars in back taxes, but you also owe penalties and interest.
Depending on how much you earn and how much the IRS claims you underpaid your taxes, the total amount due could be more than your current annual income. Those who owe money to the IRS face liens against their property, levies against their financial accounts and even the garnishment of their wages.
How can you prevent further collection activity when you do not have the resources to pay the full amount of past-due taxes at once?
You can request an installment agreement
Provided that you have the willingness and capability to make payments on your tax debt, the IRS may agree to a payment plan based on your income and other obligations. You can request an installment agreement that allows you to make fixed payments within a specific time frame.
The IRS will review the suggestion and your tax debt to determine if you qualify for a payment plan, how much you should pay and how long you can take to repay what you owe. If they approve you and agree to grant you a payment plan, you may have to pay certain fees. Any repayment plan that will last more than 180 days will incur specific charges.
You will have to continue making payments on time or risk further enforcement efforts. So long as your payments keep you in compliance with the agreement, you can avoid liens, levies and other enforcement actions.
What happens if your situation worsens?
Some people subject to payment requirements on a tax installment agreement with the IRS lose their jobs or face other financial hardships unexpectedly. If you fall behind on payments, you are at risk of enforcement actions. The good news is that you can submit paperwork to the IRS to change an existing payment plan when your circumstances change.
Understanding how to regain control of your monthly budget when you owe quite a bit in past-due income taxes will help you avoid aggressive tax enforcement efforts.