“We’re from the IRS and we’re here to help you.” That could be the punch line to an old joke, but the Internal Revenue Service is taking it quite seriously. With the economy still weak and unemployment high, the agency is again taking several steps to aid financially troubled taxpayers.
“Times are tough for many people, and the IRS wants to do everything it can to help people who have lost their job or face financial strain,” IRS Commissioner Doug Shulman said in a news release. “We’re doing everything we can to help ease the burden.” For the second year in a row, the agency is reaching out to the unemployed with additional counselors and extended hours. And it is offering its agents broader leeway to negotiate deals with taxpayers who don’t have the cash they need.
Taxpayers who can’t afford to pay their taxes should still plan to file a return, or request extra time to file, by April 15. The penalties for failure to file a return are high—5 percent of taxes owed a month. But the IRS may be able to help reduce the amount of taxes owed, or work out a payment plan that would make filing less painful.
Here are some of the IRS’s efforts to help cash-strapped taxpayers.
Cutting the amount owed. The IRS has a program called Offers in Compromise through which the tax agency agrees to settle taxpayer debts for less than the full amount owed. It has always been hard to get one of these agreements—in 2009, the IRS nixed three out of four requests—and they are reserved for people for whom full repayment would be an extreme hardship.
But the tax agency’s new guidelines direct its agents to be more flexible than in the past. Specifically, IRS negotiators will be allowed to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise. In previous years, they were permitted to look only at earlier years’ income.
“This is good news for anyone who used to make a lot of money, but now does not,” says tax attorney Howard Levy, who negotiates many of these offers for clients. “But it still will depend on the person investigating it.”
And here’s a warning to those who think they can get away with paying pennies on the dollar just because they saw a television ad offering such a settlement. The IRS has been warning consumers since 2004 that many of these “compromise mills” are unscrupulous and charge high fees without building or submitting adequate cases for their clients.
Payment plans. If you think you can pay your tax bill, but not on April 15, the IRS offers payment plans that you can set up yourself. Called installment agreements, these plans allow you to schedule your own payments so they are affordable to you. You will be charged a monthly penalty of 0.5 percent for every month that your taxes are unpaid, and your unpaid taxes will also be subject to an interest charge, currently 4 percent a year. But this may be the easiest (and least expensive) way to pay your tax bill over time. There’s an up-front charge of $105 ($52 if you allow the IRS to automatically debit your checking account). To get started, visit the IRS’s website on these agreements and download Form 9465.
More hours, more help. The IRS will hold hundreds of special Saturday open houses to give struggling taxpayers more opportunity to work directly with IRS employees to resolve issues. The agents there will be trained to help taxpayers make the most of the various stimulus tax breaks that apply to 2009 taxes. Agents will also coordinate with state revenue departments so troubled taxpayers can work out their federal and state tax problems at the same time.
The agency has also created a new website pulling together information for anyone who is unemployed and financially struggling.
Homeowner help. Troubled homeowners who can’t sell or refinance their homes because they carry tax liens can get accelerated help from the IRS. The agency may agree to make its lien secondary to the primary mortgage lender, or may agree to discharge the lien if the house isn’t worth as much as its existing mortgage and the tax lien put together. Or it may agree to discharge the lien if the home is being sold for less than the amount of the mortgage. The IRS originally announced this program more than a year ago, and lays out details of how to apply on its website.
Video help. Finally, the IRS is using YouTube.com to reach taxpayers who’d like to watch their friendly federal tax agency offer personal advice. If figuring out your taxes is too depressing, you can take a break and watch tips on what to do if you owe more than you’ve got.
Linda Stern is a freelance journalist who writes about financial issues.