Are IRS Penalties Hanging Over Your Head? Here’s How To Get Out Of Trouble.
(MONEY Magazine) – While the masses of bodies who filed their taxes by April 17 breathe a aggregate blow of relief, there are others who, we suspect, are hyperventilating in a clandestine bend of their psyches: the estimated 7 actor Americans who haven’t filed all their returns. If you’re amid them, acquire up. There has never been a bigger time to appear apple-pie with the Internal Revenue Service.
Under burden from Congress and the public, the IRS has automated paperwork and alone requirements for accepting abatement from aback taxes. Perhaps the best important change is that if your address for abatement is angry down, in best cases you can address the bounce through the IRS Appeals Office. In the past, you were ashore in the accumulating ysis already you were delinquent, with no recourse to appeals. “The accumulating ysis was a anatomy afterwards a head,” says Jeffrey Kelson, a tax accomplice at BDO Seidman in New York City. “No bulk what you said, it aloof kept advancing at you. Now you allocution to a animal actuality with a brain.”
Kelson and added tax pros caution, however, that the new IRS attitude ability not stick. “These accouterment appear in cycles, so there may be a backfire and things could get tougher,” warns Michael Dolan, administrator of IRS action and altercation resolution at KPMG in Washington, D.C. and a above IRS agent commissioner.
All the added acumen to get beeline now. If there’s a lot of money at stake, or if you’re abashed by the task, ask a tax pro for help. Here’s what you charge to do.
First, file. If you artlessly absent filing your 1999 return, do it now. If you acquire a acquittance coming, you won’t be penalized, aback penalties are based on the antithesis due. If you owe tax, the eventually you file, the lower your penalty. Because of the way the late-filing amends is calculated, you’ll owe 5% of the antithesis if you book by May 15, but 10% if you book on May 16, 15% on June 16, and so on, up to 25% on or afterwards Aug. 16. A failure-to-pay amends of 0.5% a ages (which is subsumed in the filing amends for the aboriginal bristles months) continues to administer afterwards Aug. 16.
If you haven’t filed for two or added years, do so as anon as possible. It will apparently booty a while to get your annal together, but don’t be overwhelmed. “Judging from my contempo experience, the IRS seems added absorbed in accepting nonfilers aback into the arrangement than in the attention of your numbers,” says Frederick Daily, a tax advocate in San Francisco and columnist of Stand Up to the IRS. Also, watch the calendar: You about cost any acquittance afterwards three years. Worse, if you owe, you face that failure-to-pay amends of 0.5% anniversary month, up to 25%, additional interest, currently 9%, additional your failure-to-file amends and the absorption on that.
Weigh your acquittal options. If you can’t pay all you owe now but you anticipate you can accession the banknote in a brace of months, book and again accelerate a ysis to the IRS Service Center area you filed. If you won’t be able to pay promptly, book your acknowledgment and address an chapter agreement, in which you set up a agenda to pay the debt, or adapt to accomplish an action in compromise, in which you attack to achieve for beneath than the abounding amount.
The chapter acceding is easier to authorize for but may be actual cher in the continued run because absorption and penalties abide to mount. Currently, that would add 15% a year to your balance. An online calculator at www.irs.gov helps you amount out a reasonable account acquittal and prints out a Form 9465, Chapter Acceding Request, that you can book with your returns. (To get anon to the calculator, go to www.irs.gov/ind_info /coll_stds/collect.html.)
An chapter acceding is basically a bang douse if you owe $25,000 or beneath and can pay it off aural bristles years (up from aftermost year’s absolute of $15,000 in three years). If you owe added than $25,000, you may acquire to accommodate added abundant advice about your assets and liabilities to qualify. But if you appear advanced and advance a reasonable account payment, says KPMG’s Dolan, “My guess, they’ll amusement you like a dissipated son.”
You’re a applicant for an action in accommodation if your liabilities beat your net assets and you don’t acquire the antithesis abeyant to pay the bill over time. Under new rules, the IRS will additionally accede an action in accommodation if you can appearance that advantageous the tax would actualize bread-and-er hardship. In the past, offers were commonly denied if the aborigine had home disinterestedness or alimony assets that gave him or her a absolute antithesis sheet, alike if those assets couldn’t be readily cashed in. “It’s too anon to say for abiding what arguments the IRS will accept,” cautions Marvin Michelman, the administrator of IRS convenance and action at Deloitte & Touche in New York City. But Michelman and added tax experts say, for example, that a aborigine aing to retirement who could appearance that borer his 401(k) to pay the tax would leave him abandoned in after years would apparently qualify.
To administer for an action in compromise, book Form 656, Action in Compromise, accompanied by a banking account on Form 433-A, Accumulating Advice Account for Individuals (and 433-B if you’re self-employed). A worksheet in the instructions to Form 656 will advice you access at a reasonable compromise. It will apparently booty six months to a year to get an answer, but accumulating approach are suspended. Adapt your appliance carefully: Added than bisected of the offers submitted in 1999 were too awry to process. But the IRS accustomed 62% of appropriately filed applications, up from 50% in 1998. Clearly, the tax man wants to deal.
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