Despite its hard-nose reputation, the Internal Revenue Service (IRS) will work with you if you find yourself in a position where you can't pay your tax bill. Depending on how much you owe, or the reason you can't come up with the money, you may have several options. You should file your return anyway, and send the IRS as much as you can.
Ask for More Time
The IRS may be willing to give you up to four months to raise the money you owe. You'll still accrue penalties and interest, but these fees are generally less than if you wait longer to pay. This could be a workable option if you think you can come up with the money in the near future.
Request a Payment Plan
The IRS will also allow you to set up a payment plan. Depending on how much you owe, you can arrange for this online, but you'll have to follow up with either a written request or a phone call. This might be your best option if you know it's going to take you longer than a few months to raise the money. The IRS will allow you to make regular payments for up to five years. However, interest and penalties will add to the balance monthly.
Make an Offer in Compromise
An “offer in compromise" might be appropriate if it's unlikely that you'll to be able to pay your entire tax bill, usually due to some unforeseen, serious circumstance. An offer of compromise is an agreement with the IRS to reduce your tax bill. In return, you must set up a payment plan for the reduced amount. The IRS is sometimes willing to do this when it would require significant time and expense to take collection efforts against you and when these efforts are likely to be ineffective.
You'll Need IRS Approval
If you're unable to pay your taxes, no solution is automatic. You'll need IRS approval for the option you select. This is easier to get in some cases than in others. If you request a payment plan, and if you owe more than $25,000, you'll have to submit a financial statement for approval. If you request an offer in compromise, you'll have to submit a great deal of documentation to prove that you don't have the money to pay your tax bill in full. It's generally not enough that you lack cash or current earnings. The IRS may also expect you to liquidate your assets in order to make payments.
A Tax Lawyer Can Help
The law surrounding your choices when you can't pay your income taxes is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a tax lawyer.