Collection Procedural Questions (2004 IRS FAQ)

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IRS FAQ 1.5 IRS Procedures: Collection Procedural Questions

I am unable to pay my delinquent taxes. Will the IRS accept an Offer in Compromise?

You may qualify for an Offer in Compromise if you are unable to pay your taxes in full or if you are facing severe or unusual economic hardship. Refer to Offers-in-Compromise, Offers in Compromise, for additional information.


Is there any special assistance available on unresolved tax matters which are creating a hardship?

If you are suffering, or about to suffer a significant hardship because of the way Internal Revenue laws are being carried out, you may ask for special help from the IRS' Taxpayer Advocate Program. The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. You can reach that office by dialing (877) 777-4778.


Can I ask to make installment payments on the amount I owe?

Yes. If you cannot pay the full amount due as shown on your return, you can ask to make monthly installment payments. However, you will be charged a one time user fee of $43.00, as well as interest on any tax not paid by its due date, and you can be charged a late payment penalty unless you can show reasonable cause for not paying the tax by April 15, even if your request to pay in installments is granted. Before requesting an installment agreement, you should consider less costly alternatives such as a bank loan.

To request an installment agreement, send Form 9465 (PDF), Installment Agreement Request, with your return or call (800) 829-1040. You should receive a response within 30 days. For more details on installment payments, refer to What To Do If You Can't Pay Your Tax+, What to do if You Can't Pay Your Tax, or Publication 594 (PDF), Understanding the Collection Process.


What kind of penalties and interest will I be charged for paying and filing my taxes late?

Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.

For current interest rates, go to News Releases and Fact Sheets and find the most recent Internal Revenue release entitled Quarterly Interest Rates.

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. However, you will not have to pay the penalty if you can show reasonable cause for the failure. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

Beginning January 1, 2000, if you filed a timely return and are paying your tax pursuant to an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return. After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid. Thus, the total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed. Also, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100% of the tax required to be shown on the return.

Also, refer to IRS Notices and Bills, Penalties and Interest Charges, IRS Notices and Bills and Penalty and Interest Charges.



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