IRS Procedures > Collection Procedural Questions

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Frequently Asked Tax Questions

IRS Procedures - Collection Procedural Questions

Rev. date: 4/2009

I am unable to pay my delinquent taxes. Will the IRS accept an Offer in Compromise?

Bill/Debt/Liability
Monthly Payment Plan/Installment Agreement
Offer in Compromise
Tax Bill/Debt/Liability

You may qualify for an Offer in Compromise if you are unable to pay your taxes in full or if you are facing severe or unusual economic hardship.

Refer to Tax Topic 204, Offers in Compromise, for additional information.

Rev. date: 3/2009

What kind of interest and penalties will I be charged for filing and paying my taxes late?

Bill/Debt/Liability
Due Date
Interest
Interest and Penalties
Penalty for Underpayment
Tax Bill/Debt/Liability

Interest is compounded daily and charged on any unpaid tax from the due date of the return until the date of payment.

The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.
For current interest rates, go to News Releases and Fact Sheets and find the most recent Internal Revenue release entitled Quarterly Interest Rates.

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty.

The late payment penalty is one-half of one percent of the tax (0.5%) owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent.
You will not have to pay the penalty if you can show reasonable cause for the failure.
The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.
Currently, if you filed a timely return and are paying your tax via an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause.

The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%.
The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return.
After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid.
The total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed.
If your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 ($135 for returns required to be filled after December 31, 2008) or 100% of the tax required to be shown on the return.

Rev. date: 1/2009

Is there any special assistance available on unresolved tax matters which are creating a hardship?

Taxpayer Advocate

If you are suffering, or about to suffer a significant hardship because of the way Internal Revenue laws are being carried out, you may ask for special help from the IRS' Taxpayer Advocate Program.

The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. You can reach that office by dialing 877-777-4778.

Rev. date: 1/2009

Can I make installment payments on the amount I owe?

Monthly Payment Plan/Installment Agreement

Yes. If you cannot pay the full amount due as shown on your return, you can ask to make monthly installment payments. If your request to pay in installments is granted, the following conditions apply.

You will be charged a one time user fee of $105.00,
Interest is charged on any tax not paid by its due date, and
You will be charged a late payment penalty unless you can show reasonable cause for not paying the tax by the due date (April 15, 2009) for individual income tax returns Penalty will be charged until it reaches 25% of the original balance due and interest will be charged until the account is fully paid.
Before requesting an installment agreement, you should consider less costly alternatives such as a bank loan.

To request an installment agreement send Form 9465 (PDF), Installment Agreement Request, with your return or call 800-829-1040. If you call you can also request a direct debit agreement or a payroll deduction agreement. You should receive a response within 30 days if you submit the form with your return. For more details on installment payments, refer to the references below.


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