How to Beat the IRS
For high-income earners, audits have risen almost 300% since 2004. Further, the estimated tax gap (an internal IRS measure to determine the shortfall between what taxpayers pay and what they actually owe) is going to be around $350B in 2010. That means the IRS is out in force, checking, rechecking, and getting in touch with taxpayers who owe.
For most of us, the thought of dealing with the IRS makes us as nervous as a long-tailed cat in a room full of rocking chairs. Forewarned is forearmed, so once you understand what the IRS is capable of, you will be better prepared to deal with it. But if you do get tapped by the IRS, take a breath, don't panic, and know you do have options.
Pay your Taxes
Like most things, the simplest solution is usually the right one, so the quickest way to get the IRS off your back is to pay whatever bill is sent to you. Ultimately, this agency doesn't want to make your life miserable (and it doesn't want to waste its own time and resources), it simply wants its money. Conventional payments like a check, money order, cash, or an electronic funds transfer will get you in the clear.
If your everyday disposable assets are limited, there are still some things you could do. Resources like a credit card, a 401K, home equity, or any cash value in a life insurance policy, can be used to pay your debt. A particularly shrewd move would be to get a bank loan. Why? Because the interest you pay on the loan will probably be less than the interest and penalties you will have to pay to IRS.
The Friendly Way to Pay
If you're tapped out and can't pay in full, you could request an installment agreement. This way, you're able to break up the tax bill into much smaller installments to be paid over a period of 10 years. Just fill out Form 9465 (Installment Agreement Request) or call 1-800-829-1040 to apply.
Just know if you go this route, the IRS would prefer it if you set up direct debit or a payroll deduction. And that's because if you're late on a payment, the agreement could terminate and the IRS could start the process of liens and levies. So save the postage and make the payroll deduction your preferred way to pay.
If the IRS sets you up with a direct debit installment agreement expect to pay $52 for the convenience of it all. And if you have gone this route before, the IRS will charge you a $45 reinstatement fee and modify your monthly payment. If you're in the process of applying for an agreement, you should make voluntary payments until the whole thing gets processed. If you default on the agreement and later are lucky enough to get it reinstated, that charge is $45.
Generally, the IRS will stay away from (won't levy) your property if you're going through the process of obtaining an installment agreement. It will also leave your stuff alone if your agreement is in effect. You're also safe for a period of 30 days after your application has been rejected, 30 days after your agreement has been terminated, and while your appeal of the termination or rejection is being considered. So basically, while you're waiting for due process, you won't have to worry about claims attaching themselves to your possessions and damaging your credit.
If you're really in a bind, you could request a temporary delay in the collection process. Basically, you're banking on the IRS to delay the payment of your tax until you get back on your feet. Unfortunately, you'll have to pay penalties and interest in the meantime. You should also know the IRS can put a lien on your belongings while it waits for you to get yourself together.
A Compromising Offer
If you don't have (or can't get) the money to pay your bill, you could apply for an offer in compromise. Here the IRS may allow you to settle up for less than what you owe. And why would it do such a thing? If it feels there is some doubt as to how much you owe, or if it believes it will never get its money from you, it may let you off the hook for a good portion of your bill. If you have a serious economic hardship, you may also get some leeway.
Be prepared to come up with a $150 application fee and a lot of sweat as you wait out this process. And if it's accepted, you'll generally have to come up with some quick cash (a lump sum payment to be paid in 5 or fewer installments) while another option is a short-term periodic payment, (or one that must be paid within 2 years of your application's acceptance date). Ultimately, how much time you have to pay is up to the IRS.
You're Done
Like it or not, the best way to deal with a superior enemy is to either evade it or give it what it wants. Since you will be unable to hide from the IRS, the logical choice is to just to pay your taxes. If you do, you’ll be able to beat the bigg
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