If you owe income taxes from your self-employment or because of your small business — be it a sole proprietorship, partnership, S-corp or some other small-business organization that files taxes on your individual return – you might find that your tax liability exceeds your ability to repay, or at least your ability to repay immediately. If you’re in this situation the first question you might be asking is – now what?
Fortunately, the Internal Revenue Service has standards that attempt to ensure that you and your family are not impoverished or put out of business by way of an overaggressive tax repayment schedule. After all, the IRS would rather you stay in business and continue to pay taxes in the future, in addition to paying any past-due balance you might have. The good news is that you can apply for a repayment plan. Such repayment plan applications are pretty routinely granted.
Will a Repayment Plan Leave My Family Enough to Live On?
The IRS has Collection Financial Standards that are intended to determine how much money a taxpayer will require to live on while still being able to repay delinquent taxes, including interest and penalties. These standards establish allowable expenses for living expenses such as food, clothing and other routine expenses, health care, housing and utilities, and transportation. The standards are intended to leave you with enough to meet your daily living expenses even while you repay delinquent taxes. The difference between the amount required for you to live on and the amount of income you have is likely to be the amount you pay each month to the IRS to repay delinquent taxes.
In general, repayment agreements will require little or no documentation of actual financial circumstances. The Collection Financial Standards only apply in cases when there is a need for financial analysis to determine a taxpayer’s ability to pay. Most repayment plans have a term of three years. However, in many cases where the Collection Financial Standards are used, the delinquent taxpayer may qualify for a six-year repayment term. The six-year term allows a delinquent taxpayer to claim living expenses that exceed the amount allowed under the Collection Financial standards and also allows the taxpayer to claim minimum payments on credit cards and student loans as factors in determining the monthly payment. Even so, the total tax liability under such plans must be paid within six years.
To qualify for such repayment plans, taxpayers must provide certain financial information. However, they do not need to provide supporting documentation of reasonable expenses.
Contact Tax Attorney Jeff Cohen Today
If you owe back taxes to the IRS, it is possible that federal regulations on collection standards might provide you with certain protections in formulating a repayment plan. To find out if this is the case, you should seek legal advice from an experienced tax attorney. To help you deal with this type of situation in the Atlanta or Marietta areas, contact tax attorney Jeff Cohen, Attorney at Law. You can call me anytime at (404) 814-0000 or use my online contact form.