Every year, the Internal Revenue Service hears the same excuses from taxpayers attempting to avoid paying their taxes. The idea that certain circumstance can get you out of paying your taxes is a fallacy. Although you do have to pay, there are certain situations in which the IRS will provide tax relief options or allow you to pay later.
In this article, we’ll discuss these facts and fictions about paying your taxes.
Fact: There Are Valid Reasons to File and Pay Late Taxes
The IRS will accept late filing and payments if they determine the taxpayer had “reasonable cause” to be late. Reasonable cause means that you did everything reasonably possible to meet your tax obligations but were unable to do so due to specific unavoidable circumstances.
These circumstances may include:
- Fires or other natural disasters
- An inability to obtain proper records
- Death or incapacitation of an immediate family member
- Serious injury, incapacitation, or other unavoidable absence
Proving that you had reasonable cause requires that you explain the specific details of your situation and support your explanation with documentation and other proof.
Fact: You Have Options if You Can’t Pay On-Time
Unfortunately, not being able to afford to pay taxes is not considered a “reasonable cause” for not paying your taxes on time. However, there are tax relief and assistance options that can help if you are struggling to pay.
Short-Term Extension to File
First, it is important to note that an extension to file is not an extension to pay. A short-term extension means you have until October 15 to file your taxes and the IRS will not fine you for not filing. However, you must still file by April 15, and you will likely face fines for paying late.
Offer in Compromise
If you are experiencing extreme financial hardship, you may want to consider filing for an offer in compromise (OIC). While rare, OICs allow taxpayers to settle their tax debt for less than the amount they owe. To qualify, you will need to prove that you have few assets, income, or prospects for future income. If you qualify, you will still need to pay the compromise amount.
RELATED ARTICLE: How to Get the IRS to Accept Your Offer In Compromise
Tax Payment Plans
Short- and long-term payment plans may be available if you are currently unable to pay your owed taxes. While you will still have to pay interest and applicable late penalties, these payment plans serve as an agreement with the IRS that you intend to pay your taxes within the given term (120 days for short-term plans).
Currently Not Collectable Status
If you will not be able to pay your taxes within the time frame of a payment plan, you may be eligible for a currently not collectible (CNC) status. A CNC status means that the IRS recognizes you are unable to pay taxes at this time. CNC status will protect you from further IRS collection action such as liens and levies. However, CNC does not erase your tax debt or stop penalties and fees for missed or late payments. Additionally, the IRS will likely monitor your income and revoke your CNC status once you have enough income to be able to afford to pay taxes. In other words, you still owe the taxes and are subject to fines — but are safe from IRS action.
Fiction: You Don’t Have to Pay Taxes if…
Stop. There is no “if.” Despite the myths and excuses you may find online, there is no exception to paying your taxes. All “tax residents” are required to pay taxes. Tax residents include any permanent resident of the US and green cardholders. Regardless of whether the income was earned in the U.S. or abroad, residents are required to report all income to the IRS and pay the taxes required.
Scam Alert: Tax Avoidance Claims are Scams
Some companies claim to be able to help taxpayers avoid having to pay taxes. As we previously mentioned, there is no valid excuse not to pay. These companies are scammers who are looking to take your money — or worse, collect your personal tax information for future tax fraud scams.
Penalties for Not Filing or Paying Your Taxes
Besides being held responsible for any taxes not paid in full, the IRS will charge an additional monthly fine to taxpayers who pay or file late. The fine amount depends on how late you are and the amount of taxes you owe.
Note: You will not have to pay the failure to file or late penalties if you can show a valid reason for not filing or paying on time. Speak to a skilled and experienced tax attorney for advice on whether you qualify for waived penalties.
S.H. Block Tax Services Can Answer Your Complex Tax Questions
The attorneys at S.H. Block Tax Services have experience working with clients to determine their tax status and payment opportunities. If you’re worried about how you are going to pay your taxes, please contact us today to learn more about your tax options.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.