November 20, 2020

Written by Peyton L. Derrow

Each year at tax time, thousands of Americans are taken aback by just how much they owe and simply can’t afford to pay. For some taxpayers, especially the self-employed this triggers a cascading effect that goes on for years and is exacerbated by outlandish penalties and interest that quickly turn their tax burden into an insurmountable nightmare. According to the IRS, 14 million Americans owed back taxes for the 2018 tax year.  For this unfortunate group, they still held a tax burden from the previous year (often multiple years) in addition to any amount they owed for 2019. Whether they can’t afford to pay what is due or they fail to file their returns altogether, far too many Americans find themselves in a position where paying their full tax burden proves financial devastating.

If you got blindsided by the amount of taxes you owe, and you’re being kept up at night when wondering “what if I can’t afford to pay my taxes?”, consider these steps toward fulfilling your tax responsibility and avoiding excessive and unnecessary tax penalties.

Keep in mind, you never want to go it alone when it comes to overcoming your tax debt. The IRS is an unwieldly 10,000 lb. gorilla that doesn’t give up easy. Only an experienced Tax Attorney can go toe to toe with the IRS and come out victorious. Carolina Tax Resolutions’ team of professionals is here to help you each step of the way. We’ll negotiate with the IRS and the state Department of Revenue on your behalf and we won’t stop fighting for you until your matter is resolved. 

1. File by the deadline even if you can’t pay

If you can’t afford to pay, you may feel like avoiding your taxes altogether. The old adage out of sight, out of mind is not a strategy or at least not a good one. It will leave both the debt and the fear of the unknown consequences looming precariously over your head. Even if you can’t pay right away, it’s always better to file your taxes on time. If they’re already delinquent filing them as soon as possible is the best first step to a successful resolution no matter how much you may owe. The last thing you want is an audit and late filings increase the odds of an audit exponentially. In a addition to becoming a target for an audit you’ll incur steep penalties for filing late: 5% of your total tax burden, in addition to the taxes you owe.  File your tax return on time, no matter your financial situation. 

2. Consider payment alternatives/remedies

IRS Payment Plan:

If you owe taxes and you can’t afford to pay the full sum up front when you file, one of the simplest options is to set up a payment plan with the IRS.  IRS installment agreements are intended for taxpayers who cannot afford the cost of a full payment upfront when they file their taxes but expect that they will be able to pay within a set timeframe. 

This is an agreement between the taxpayer and the IRS that will determine what amount the taxpayer must pay the IRS each month while allowing the taxpayer funds for food, housing, clothing, medical and transportation expenses.  It’s a complicated formula and only after it’s calculated are we able to begin negotiations.  The automated collections group (ACS Collections) at the IRS will not inform you of your rights and may let you enter into a payment plan that you can’t afford.  Therefore, it is essential to obtain professional assistance with this process.

Delay Tax Collection:

If you are a small business owner or are self-employed, and are unable to pay your taxes in full, it’s possible to delay tax collection.  This simply lets the IRS know that you are unable to pay for the time being, and that you will pay your tax burden once you have the funds necessary to do so.

Note: interest still accrues on your tax total, and penalties for late and missed payments still apply. 

File for Currently Not Collectable Status:

Similar to delayed payments for small businesses, Currently not Collectible (CNC) status grants taxpayers permission from the IRS to avoid paying for a certain amount of time.  Once a taxpayer is placed on CNC status, the IRS will suspend its collection activities (must immediately stop any wage garnishment or bank levy), but penalties and interest will continue to be added to the tax debt.  If a taxpayer’s financial situation improves, the account will be taken off CNC status and the IRS can begin collecting on the tax debt through full payment or an installment agreement.

It is crucial that your CNC paperwork is submitted properly by an experienced North Carolina tax attorney or the result could mean a rejection of your submission or, even worse, you may be forced to pay more than necessary. This option amounts to “kicking the can down the road” but for some folks it’s a vital step in order to give someone enough stress-free time and space to regroup, catch up on other finances or find a job without the IRS breathing down their neck so that they can make a payment they can afford later.

Offer in Compromise:

Another option is to have your attorney submit an  Offer in Compromise.  Offers in compromise are available to some taxpayers who may not be able to pay their taxes.  The IRS will allow taxpayers to significantly reduce the amount of taxes, penalties and interest owed if you prove that paying your full tax burden would incur financial hardship.  And, thanks to the Fresh Start Program, the IRS has made Offer in Compromise terms more flexible. 

It’s important to note that the process can be complicated, and while some less scrupulous companies make claims of “Pennies on the dollar”, the reality is that not everyone will qualify and for those who do they may need to pay dimes on the dollar, not pennies. If monthly installments would put you in a financially devastating position, an Offer in Compromise can be a very helpful option. When the conditions are right, we have successfully shaved tens of thousands of dollars off our clients tax debt. Carolina Tax Resolutions will guide you through the complicated Offer in Compromise process and fight to get you the best outcome possible.

How do I know how much I owe?

Once you file your taxes, you will receive notice how much you owe. CTR can get you caught up and our fees are often less than what a CPA might charge. Our Tax Attorney’s use their wealth of tax law knowledge to minimize the tax you owe so that negotiations begin from a more favorable place.

If you’ve received notice of a wage garnishment, bank levy, IRS audit or your tax situation is complicated and you just need a little help making sure you get it right, Carolina Tax Resolutions can help.

So, what if you can’t pay your taxes?  Remember, these are the steps that are wise to follow:

• File taxes by the deadline anyway. There’s no benefit to putting off filing, and often a significant disadvantage to filing late
• Consider payment alternatives/remedies: IRS payment plans allow you to pay your taxes in monthly installments, along with a bit of interest.  If you can’t pay all your taxes, delaying collection, Currently Not Collectable Status, and Offer in Compromise are useful ways to defer your burden to a later date when you expect to have more cash on hand.  

You owe money to the IRS or the Department of Revenue and you don’t know quite what to do so you’ve done nothing or signed up for a payment you can’t sustain. There are solutions and the experienced professionals at Carolina Tax Resolutions will be in your corner from start to finish.