The economy has improved, at least according to some statistics, but for many Americans times are indeed lean and difficult. March and April are the months when most people prepare and file their individual tax returns. According to IRS statistics, most people receive a tax refund, but some percentage will owe money. There is a huge temptation, after the return is prepared, and you discover that you owe the IRS some money, to simply not file and ignore the situation. Disregard that temptation because it is possibly the worst course that you can pursue. This is no time for Ostrich-like behavior.
The law provides for penalties to be imposed and the first penalty is appropriately labeled “Failure to File” and accrues 5% penalty of the taxes due amount each month with a maximum of 25%. If the filing is, more than 60 days late then the penalty can be 100% of the taxes due with a minimum of $100.
There is also a penalty called “Failure to Pay” that is much more reasonable. You are only charged ½ of one percent per month with a maximum penalty of 25%. If the IRS decides that for fraudulent reasons, you decided not to file the penalty can escalate to 15% per month with a maximum of 75%.
Should you decide to take the adult approach and file your tax return, showing a balance due knowing that you cannot pay the return then you will avoid the harsh Failure to File penalty and simply be charged the smaller Failure to Pay. If you think that you can pay the amount that you owe the IRS within six months of the April 18, 2011 due date you should file form 1127 which is a “Request for Extension of Time for Payment of Tax, and explain the financial hardship. The IRS will reward you by waiving the penalties although you still will have to pay interest.
If you do not think that you can make the payments within 6 months then you may request that the IRS allow you to participate in an installment plan. The IRS will allow you to use their website, www.irs.gov , to complete the request for an On-line Participation Agreement. In order to be able to do this your combined liability for taxes, penalties and interest must be $25,000 or less.
Usually you will be given 60 months to pay the balance due and the late payment penalty is reduced to just ¼ percent. You must also pay an enrollment fee of $105 but that can be reduced to 52 if you authorize the IRS to debit your bank account each month.
If the amount that you owe is more than $25,000, you will be required to complete form 433F that is the Collection of Information Statement and form 9465, which is the Installment Agreement Request.
You should view the IRS in a less adversarial light and realize that they want to work with you.
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