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If you cannot pay the full amount of taxes you owe by the April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040.
Since your balance is subject to interest and a monthly late payment penalty, it is in your best interest to pay in full as soon as you can to minimize the additional charges.
You should consider financing the full payment of your tax liability through loans, such as a home equity loan from a financial institution or a credit card cash advance. The interest rate a bank or credit card charges and any applicable fees are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code.
An installment agreement would allow you to make a series of monthly payments over time. A one-time installment agreement fee of $105 will be charged when you enter into an installment agreement unless you choose to pay through a Direct Debit from your bank account, in which case the fee is $52.00. Taxpayers with income at or below 250% of the Department of Health and Human Services poverty guidelines can apply to pay a reduced user fee of $43.
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer's tax liabilities for less than the full amount owed.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer's ability to pay and includes the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. Please be aware that the IRS accepts less than 1% of OIC applications.
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