An IOU for Taxes Due

The taxes are finished. The bottom line reads "Amount You Owe." But the money's not there. Now what?

"People should ask the Internal Revenue Service about their payment options," said John Dalrymple, IRS Chief Operations Officer. Those who can’t pay their tax bills in full should fill out an Installment Agreement Request (Form 9465) and send it to the IRS along with their tax returns.

"This single-page form allows people to estimate a monthly payment that will fit within their budget and allow them to pay off the taxes owed in a reasonable period of time," explained Dalrymple.

An installment agreement generally must be approved by the IRS and some additional information may be required. However, under a new tax law provision beginning July 22, 1998, the IRS must grant an installment agreement if:

l. the tax is owed by an individual and is not more than $10,000,

2. the taxpayer has not failed to file or pay tax in the preceding five years,

3. the taxpayer has not entered into an installment agreement under these provisions in the preceding five years,

4. the agreement requires full payment within three years, and

5. the IRS determines that the taxpayer is not financially able to make full payment immediately.

Once the installment agreement is set, taxpayers must meet two requirements: they must agree to make their installment payments on time, and they must stay current with their federal taxes during the agreement period. If they fail to meet either of these conditions, they will default on the installment agreement and be required to pay their tax bill in full.

"Before entering into an installment agreement, people should explore all financial sources available that would enable them to pay the full amount of taxes owed," said Dalrymple. This is important because they will face additional costs when they enter into a longer-term payment arrangement. There is a $43 fee for an approved installment agreement. In addition, interest and late-payment penalties are added to any unpaid tax. People may be able to obtain loans at banks or other lenders with more favorable rates. Those who decide to request an installment agreement should pay as much of their tax bill as they can with their return to reduce the amount of interest and penalties on the unpaid tax.

Another payment option can help people recover from severe financial debt - an offer in compromise allows people to pay an amount less than the full amount of taxes owed. If their financial situation is such that it’s obvious they may never be able to pay all the taxes owed, or there is a pending dispute regarding the tax liability, the IRS may accept an offer in compromise. "Although this particular payment option can be instrumental in helping a taxpayer recover from severe financial debt, many don’t know it exists," said Dalrymple.

Before entering into an offer in compromise, most people must complete Form 656 and a comprehensive financial statement showing assets, liabilities and income. The financial statement is no longer required if the only issue is a dispute over the amount of tax. The offer must reflect the maximum they can pay. Also, they must agree to meet all their federal tax obligations for five years or until the amount offered is paid in full, whichever is longer. Those who fail to meet the terms of the offer will once again owe all their back taxes in full.

"The IRS believes an offer in compromise makes good business sense," said Dalrymple. "It benefits taxpayers by giving them the opportunity to get out from under a heavy financial burden. It gives them a fresh start and brings them back into the tax system. It also benefits the IRS and all tax-payers by bringing in taxes that may not be collectible any other way."

So for people who find themselves facing an unexpected tax bill, and payment in full just isn’t an option, remember these payment alternatives. For more information, call the IRS at 1-800-829-1040.

Credit Cards May Be Used to Pay Taxes

This year, some people who owe the Internal Revenue Service money have a new payment option. "We have two arrangements that allow the payment of federal income taxes by credit card for the first time," said Bob Barr, IRS e-file executive.

"One arrangement will let people who e-file using Intuit's TurboTax ® or MacInTax ® soft-ware package pay the amount owed to the U.S. Treasury with any NOVUS credit card," explained Barr. NOVUS card brands include Discover Card ® and Private Issue ® and other NOVUS cards.

The other arrangement processes credit card payments by phone through an agreement with US Audiotex. "After e-filing by TeleFile, a personal computer or through an authorized e-file provider, people can call a toll-free number to charge the balance due," said Barr. Those who file a paper return may also use this system. US Audiotex will accept Mastercard, American Express, and NOVUS credit cards.

The IRS will not have any fees for credit card payments; however, users will pay the companies a convenience fee based on the amount charged.

Don’t Pay the IRS This Year

When the bottom line of the tax return says "Amount You Owe," write a check, but make it payable to the "United States Treasury", not the Internal Revenue Service. Taxes fund the whole government - they don’t just pay for the IRS. Enclose the check in the envelope, but don’t staple it to the return.

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