As the April 15th deadline for filing 2018 income tax returns draws near, practitioners may encounter some clients who don't have cash to pay the balance due on their returns. Clients can avoid penalties but not interest if they can get an extension of time to pay from IRS. Financially distressed clients may be able to defer paying their income taxes, including installment agreements and offers in compromise with IRS.
- During the past five tax years, the taxpayer (and spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement under Code Sec. 6159 for payment of income tax;
- The taxpayer agrees to pay the full amount owed within three years and to comply with all Code provisions while the agreement is in effect; and
- The taxpayer is financially unable to pay the liability in full when due and submits information that IRS may require to make this determination (i.e., a financial statement). (Code Sec. 6159(c)(2); Reg. § 301.6159-1(c)(1)).
- has an "aggregate unpaid balance of assessments" (tax, assessed penalty and interest) of $50,000 or less,
- has filed all returns, and
- will pay up within 72 months, or will pay in full before expiration of the collection statute of limitations, whichever comes first. (IRM 126.96.36.199, IRS website)
You begin the running of the Statute of Limitations for assessment & collection,
You begin the running the two-year period for discharging this debt in bankruptcy and
You reduce your associative tax return penalties from 5% a month for late filing to .05% for late payment penalty.
- The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
- If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
Read more at: Tax Times blog