A cycle code is an 8 digit code found on your account transcripts. The cycle…
If you owe the IRS a substantial amount, be sure not to ignore it. Review options such as installment agreements, extensions, or personal loans, and always seek legal advice from a professional tax attorney.
While you may want to put off dealing with tax debt and that sinking feeling that you owe the IRS, not handling it will likely lead to additional penalties, interest, and other major consequences. If you can’t pay the debt by its due date, you still need to file a return on Tax Day and/or have your tax preparer file a six-month extension. This will give you more time to seek professional help and discover what options you have to settle the debt. To avoid this and other penalties, carefully review the action steps below.
If you don’t file a return or extension by its due date, you will owe a failure to file penalty, which can be up to 25% of the balance owed. As of May 2019, the interest rate on unpaid taxes is 6%. Quickly respond to IRS notices, many of which are sent by certified mail.
If you cannot pay the balance owed within 120 days, an Installment Agreement can be set up with the IRS by completing Form 9465 (if the balance due is less than $50,000) or Forms 433-A or 433-F for larger balances. By setting up the agreement, the IRS will reduce penalties and interest rates. If you prefer the IRS to make payroll deductions, complete Form 2159. You can find these forms on the IRS website at http://www.irs.gov
If you can pay your balance within 120 days, file a short-term extension with the IRS. While you will pay a small penalty (0.5% per month on the balance due), it is convenient for taxpayers who can pay the entire balance due and you will avoid the fee for applying for an installment agreement.
A hardship extension is available to those who qualify, including those who are on CNC (Currently Not Collectible) status. While there are no fees to apply for this type of extension, the IRS will charge a 3% interest rate.
Obtaining a personal loan or borrowing from your retirement plan, such as a 401k, is an option, but it may not be ideal in your situation. You will be charged interest on a bank loan and possibly other fees as well. A loan from your 401k is subject to early distribution fees if you are not of retirement age. Before taking such a step, it is highly recommended that you speak to a tax attorney who can thoroughly review all of your options with you.
The most important step to take when you owe a substantial amount to the IRS is to speak to a professional tax attorney. While you may be hesitant to add more costs to your building debt, an IRS tax attorney can protect your assets from liens and IRS agent misconduct. A sophisticated IRS attorney knows the tax code and can give you knowledgeable advice. He or she will act as an advocate and intermediary throughout your case, therefore reducing stress and providing you with peace of mind.
If you find yourself indebted to the IRS do not panic. But there are some things to take heed of:
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