Most people would agree that owing the IRS money is not a position you want to be in. If it does happen, odds are that you may not have the funds readily available to pay what you owe.
If you are like other people across the country, including many here in Illinois, you may already be struggling to keep up with all of your other financial obligations. Under these circumstances, you may find it difficult to even enter into an installment agreement or an offer in compromise in order to settle your tax obligations. Are there any other alternatives?
There may be another way
Another alternative that the IRS does not often advertise is the ability to defer your tax payment until you are in a better financial position. If you qualify, your account could end up as “currently not collectible.” As long as the IRS considers your taxes not collectible, it will not attempt to collect the amount owed, request you enter into an installment agreement, levy your bank accounts or garnish your wages.
What’s the catch? Your account continues to incur late-payment penalties and interest. You will still owe the taxes as well. Under this arrangement, payments are merely put off for a period of time. If you happen to receive a tax refund, the IRS can apply it to the past due balance automatically. A tax lien may also be filed against your home, which does show up on your credit report.
How much time do you get?
Currently not collectible status does end at some point. If granted, the IRS will flag your file for review. Knowing what level of income will cause the agency to review your file can give you a heads up as to when your file will come under review. Whatever amount the IRS sets for your review will include all sources of income on your tax returns without considering deductions and losses.
This may seem simple, but you will need to consider numerous factors before seeking currently not collectible status and determining when the deferment ends.
Would it be right for you?
Before making any decisions regarding how to handle a tax balance the IRS says you owe it might be beneficial to gain as complete an understanding as possible of all of your options. Fortunately, you do not have to try to figure this out on your own. Instead, you could make use of the legal resources at your disposal.