Difficulty Paying Taxes or Owing Taxes?

The IRS has made clear its intention to do its part to alleviate the additional financial burden generated by the global financial crisis. The agency is taking steps to help taxpayers maximize their refunds, speed up payments, and providing additional services and counseling for individuals having difficulty with their tax burden.

People Owing Taxes

IRS Commissioner Doug Shulman has stated that the IRS would balance their responsibility to enforce the law with the economic hardships that face American citizens this tax season. He reassured taxpayers that IRS staff has been given a degree of flexibility on a wide range of issues to help taxpayers struggling to repay taxes.

Depending on the degree of economic hardship that they are suffering, a taxpayer may be eligible for adjustment to payments on back taxes, deferment of collection action, or leniency in regards to the default status of payment agreements.

IRS employees have been granted greater authority to suspend collection actions in qualifying hardship situations. Some situations that may qualify an individual’s situation include recent job loss, total reliance on Social Security or welfare income, a significant illness, or large medical bills. These suspensions of collections may be possible without accompanying paperwork.

The IRS is allowing greater flexibility to individuals—previously compliant with their tax payments—having difficulty making their tax payments because of job loss or other financial hardship. While previously the IRS would have suspended an installment agreement, they may allow a skipped monthly payment or a reduced monthly payment.

The IRS is willing to revaluate many Offers in Compromise to address the specific situation of individuals. Previously the equity in a home could exclude someone from an Offer in Compromise, but the IRS recognizes the volatility in the housing market and the inaccuracy of some property valuations. In order to adjust to the market, the IRS is implementing a second review of Offers in Compromise in areas where the real estate market is uncertain or where it has been adversely affected by the housing collapse. People may contact the IRS for options if they cannot make payments on an existing Offer in Compromise by calling 1-800-829-1040.

The IRS has eased requirements on taxpayers who request expedited levy releases for economic hardship reasons. When they call the IRS, the individual seeking the levy release should have available the fax number of the bank or employer processing the levy.

Capitalizing and Expediting your Refund

There are many new benefits available this year from the IRS and new tax breaks for people who made less income this year than last. The First-Time Homebuyer Credit now provides a pure tax credit of up to $8,000 for people searching to buy a permanent residence. For most homeowners, mortgage workouts and foreclosures are now tax-free. Other breaks include the Child Tax Credit, the Earned Income Tax Credit, and the Alternative Motor Vehicle Credit.

We are encouraging taxpayers to efile their tax return to speed the time of processing and payment of refunds. The IRS estimates that a person can receive their refund as in little as 10 days if they use an electronic filing method and direct deposit compared to the six weeks it could take people filing with the traditional paper method.

For more information, or help with your tax preparation needs, call the IRS at 1-800-829-1040.

How to Avoid Owing Taxes

• Withhold more tax from your paycheck by submitting a new Form W-4 to your employer.
• Withhold more tax from your pension payments by submitting a new Form W-4P to the payer.
• If you make estimated tax payments, increase them by submitting a new Form 1040-ES to the IRS.

For more information on these options, see Publication 505, Tax Withholding and Estimated Tax and Publication 919, How Do I Adjust My Tax Witholding?

Here are some solutions if you have trouble paying your taxes.