The government has to collect about $15 billion worth of tax penalties every year. The problem is, taxpayers cannot easily pay their debts and thus collection of these billions of dollar gets delayed for the next year. Call it ridiculous but it is a normal process. Well-informed taxpayers know that they can pay their taxes on an installment basis for as long as five years. There are even ways to stall the IRS effort when collecting back taxes.
If you are worried about possible penalties, then worry no more because the following are delaying tactics that can buy you more time until you are capable of paying your taxes:
- Wait for the CP 504 letters. You might have already received your CP 504, which will only be sent after sending the other CP 500 letters. You are given about four to six months to prepare for tax collection but perhaps you are not yet capable of paying your taxes. Receiving the CP 504 letter emphasizes threat from the IRS. This is where the real tax collection begins. But if you have not received that yet, then stay calm. You still have a lot of time to settle your finances.
- Ask for a grace period. The CP 504 letter is more threatening than the previous letters from the IRS. The IRS can already get tax payments from your bank accounts or take up to 75% from your paychecks. Before that happens, write a letter to the IRS after receiving the CP 504. State in the letter your incapacity to pay the taxes at the moment and ask for 45 days more. More often than not, the IRS grants this request. They might even give you more than 45 days.
- Ask for another grace period. The IRS will send you a letter again after the given grace period. This time, you can still ask for another 45 days extension. This request is mostly granted if the taxpayer shows that he is doing the best he can to pay taxes. So, pay even a little amount just to assure the IRS that you will be paying the tax. The government might send a letter again. Do the same technique to buy more time. This delaying tactic can be applied for a year. But do not apply this again the next time or else, your finances will be hurt. The tax you owe might become doubled or tripled if you are not careful.
- Plan for a payment scheme. The IRS is very generous when it comes to taxpayer’s suggestion. While following the technique above, think of a perfect payment scheme. Negotiate with the IRS if you can pay the tax within five years without interest. They’ll approve your request if your current financial status qualifies for that.
For bigger and more complicated cases, it will be better to seek help from a professional. The common Joe can stall IRS efforts easily because of the smaller bill. But if the talk is about millions of dollars, the IRS will be stricter on that. Get help from attorneys who specialize on tax laws. The professional fee will be worth it if that means saving yourself from paying too much of what you really owe.