It happens every now and then: A financial bump in the road causes you to fall behind in your federal tax payments. Sales may take a sudden downturn or a serious illness strikes, and you put your tax bill on a back burner.
Don't despair. There are ways to get back into the government's good graces. The IRS offers several payment plans; the condition of your balance sheet and your current income stream dictate which one is for you.
While the IRS expects you to pay your taxes on time each year, it is ready to work with business owners who find themselves in financial hot water. Becoming a delinquent taxpayer comes with some unpleasant consequences. You must pay not only the taxes owed but also interest and penalties, which continue to accrue until you settle with the IRS.
Beyond the mounting tax bill, the collection process can get ugly. "Revenue agents can put padlocks on your business and shut you down if you don't take the necessary steps to pay the IRS," says CPA Steve Halt with the Alexandria, Virginia, accounting firm Halt, Thrasher & Buzas.
There are essentially two payment options available if you're in a bind. The first one is the installment plan, which lets you pay a designated amount on a regular basis until taxes, penalties and interest are completely paid off. To apply, send in Form 9465, the Installment Agreement Request, and propose a payment plan. If you owe less than $10,000, a detailed financial statement is not required.
Use of the installment plan is on the rise. The IRS reports that the number of taxpayers using the installment payment plan has more than doubled in recent years, increasing from 1.1 million in 1991 to 2.6 million in 1996.
The second payment option, the "offer in compromise" (OIC) program, is also seeing greater use lately as the IRS attempts to collect some of the existing $100 billion in unpaid taxes. OIC gives taxpayers in serious financial trouble an opportunity to settle their tax bill by paying less than they actually owe.