Not All Americans Receive Tax Refunds
What to do if you can't pay your taxes
For Immediate Release: March 6, 2002
ROCKVILLE, Md. — Millions of Americans use tax time as a way to raise vacation money or make a big purchase after receiving a tax refund. But what happens when you owe the federal government? "When you're expecting a refund and end up owing taxes it's like waking up Christmas morning and having to pay Santa Claus," said Steve Rhode, president and co-founder of Myvesta, the nation's only financial crisis and treatment center. "If you're suddenly facing a large tax bill and don't have the cash to pay it, you can't hide for long."
Unlike credit card companies and collection agencies, the Internal Revenue Service has a considerable amount of power when it comes to collecting tax debts. "The IRS can take swift action such as seizing assets and garnishing your wages without having to take you to court," said Rhode. "If you can't pay the bill up front, it might be better to take out a loan or use a credit card to pay your taxes so you will owe a bank or credit card company instead of the IRS. However, be careful. If you use your credit card to pay taxes and then later file bankruptcy, that amount that you used to pay your taxes may not be discharged in bankruptcy."
If you don't want to take out a loan or charge your taxes but still can't pay the full amount, the IRS can set up an installment plan in which you would pay your tax bill over a three year period. You will be charged a setup fee, plus interest, plus a penalty per month on the unpaid balance until it's paid off.
Another option is to make an offer in compromise, which settles your tax debts for less than you actually owe. To qualify there needs to be some doubt that you actually owe the tax or doubt that the tax can be collected from you. Be sure your offer reasonably reflects your ability to pay.
"An offer in compromise will lower your tax liability but might not be the best solution," said Rhode. "If your offer is accepted you must meet all of your tax requirements for the next five years and if you don't comply with the terms of your offer the IRS may reinstate the entire tax liability."
For an in depth look at your options when owing taxes, read the Myvesta publication "How to Deal with the IRS if You Can't Pay Your Taxes." It can be downloaded online from Myvesta.org.
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MyvestaSM is dedicated to helping people create healthy financial lives. The organization provides a wide range of materials to inspire and inform people so that they can break down their barriers to financial and personal success. For more information visit Myvesta.org online.