For some taxpayers, income tax debts are a minor issue. They have secondary streams of income, such as rental houses or investment accounts, that result in an underpayment of estimated taxes. They may have money due when they file their annual income tax return. In such cases, the taxpayer may have enough capital on hand to cover their income tax obligations all at once.
Not every taxpayer is that fortunate. Some people only discover that they have underpaid their taxes after years of making mistakes on their returns. They might potentially owe tens of thousands of dollars or even more. What happens if a taxpayer owes a large amount and does not have the capital on hand to pay what they owe immediately?
The IRS accepts payment plans
For those with large tax debts and limited assets or income, an installment arrangement could be an option. The Internal Revenue Service (IRS) does negotiate installment arrangements with taxpayers who have sizable amounts of back taxes due.
The taxpayer can commit to regular payments to reduce their tax debt. Adhering to the arrangement can prevent the escalation of a tax controversy. They can avoid levies and other enforcement efforts that could worsen their circumstances.
An installment arrangement should reflect the overall amount of the tax debt and the current economic circumstances of the taxpayer. There is usually an expectation that taxpayers should make aggressive efforts to allocate as much as they can toward their installment payments.
The taxpayer may need to work with an attorney as they communicate with the IRS and attempt to negotiate an installment arrangement. They may then be able to make monthly payments that slowly but surely reduce the amount of back taxes that they have due. Installment arrangements can sometimes last for years, but they can help people retain control over their resources.
Those who have fallen behind on their income tax obligations may need help validating what they owe, determining what they can pay and communicating with the IRS. Having support while negotiating an installment arrangement can help people overcome their tax debts while limiting the risk of additional consequences, such as criminal prosecution.