What Happens If You Can’t Pay Your Tax Bill

It can seem like the end of the world if you learn that, in addition to all of your other bills, you owe Uncle Sam. And you've no doubt heard about the consequences of ignoring a tax debt. So what do you do if you simply don't have the ability to pay up?

While there's no secret formula that will get you out of paying a tax bill, there are ways to prevent financial collapse. It's important to understand the correct, legal way to address a tax liability. For while choosing the right tax solution can be liberating, taking the wrong path can be disastrous.

What Not to Do

Let's first consider the order of operations and likely points of failure. If you discover you're going to owe money while you're preparing your tax return, you may be inclined to avoid or delay in filing. Don't. Although it's not technically illegal to not pay a tax balance, not filing can get you into serious trouble. No matter what happens, get your return prepared and turned in before the filing deadline.

Alternatively, you may find out that you owe only after the IRS has had a chance to review your return. If they detect a discrepancy and assess a balance, you'll be notified by mail. Don't ignore any notice from the IRS; neglecting to respond will only result in further, more aggressive notices. As soon as you become aware of any tax bill, you should examine your financial ability and then weigh your available options.

A Matter of Degrees

Regardless of your ability to pay, the IRS will initially request immediate payment (this is implied for any liability you discover when you prepare your return). Despite this, the IRS also acknowledges that satisfying the entire tax balance all at once may not be feasible. Depending on how much money you have at your disposal, your solution can vary.

You may simply need to pay your liability back a piece at a time. In most cases, you'll have the option of requesting an Installment Agreement to do just that. You'll be permitted to make a regular monthly payment, a portion of which will include penalties and interest. The longer you take to satisfy the balance, the more you'll ultimately pay; even if you're utilizing an Installment Agreement, then, you want to square it away as quickly as possible.

In some instances, you may be eligible for a reduction in the total tax debt. This type of settlement, commonly known as an Offer in Compromise, comes with strict eligibility requirements. If you're approved, you'll be required to pay the reduced total within a narrow timeframe.

In the event that you can't afford any amount, even in a monthly installment, you may be eligible for Currently Not Collectible status. This prevents you from paying on your tax debt for a period of time. Although the IRS will not take action against you during this interval, your financial situation will be periodically reviewed. Once your monetary status improves, you'll be asked to satisfy what you owe.

Asking for Assistance

No matter what type of tax resolution appears to suit your finances, you should consult with a licensed tax before taking action. A tax resolution company will assign a specialist to examine your situation closely before working with the IRS on your behalf. This will ensure that you receive a fair and affordable solution, and prevents you from having to face the IRS on your own.

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