Do you owe the IRS?
A new worry as you scurry to finish your federal income-tax return: the government, for the first time, is hiring private debt-collection companies in an attempt to recover delinquent taxes.
Thereís an estimated $120 billion in uncollected taxes; about 80,000 taxpayers have delinquent tax bills exceeding $100,000.
Strategies for paying
So what do you do if you owe the IRS and just canít pay the bill?
The best strategy is to promptly let the tax collector know the situation. You may be able to set up an installment plan, a delay in payment, or gain a compromise settlement.
Since unpaid tax bills accrue both failure-to-pay penalties and interest, consider all personal sources of financing before running up a debt with the IRS. For example, check stock and mutual fund investments, along with their rates of return, to identify those that could readily be turned into cash. Even a bank loan or home equity loan may be a less costly alternative.
Most 401(k) plans, as well as some Keogh and pension plans, permit you to borrow against retirement funds. There are strict limits, though, on how much you can borrow, and if you leave your job with a loan outstanding, youíll have to repay it immediately or have the loan treated as a distribution, subject to income tax and penalty.
In many cases, the IRS allows payment plans, generally based on monthly installments. Send a written statement indicating the amount you propose to pay each month and the payment date, or fill out one of the IRS installment-agreement requests. The agency will notify you, usually within 30 days, that it has approved or denied your request.
IRS debt collectors
The new IRS effort will mirror standard private-sector, debt-collecting techniques. The debt collector will first mail letters, complete with payment coupons, to delinquent taxpayers. It then will telephone the debtors, although it isnít supposed to call employers or neighbors.
If the taxpayer canít pay the debt in full, the debt collector can set up an installment plan for repayment within five years. If a five-year repayment isnít feasible, then the private company obtains financial information from the taxpayer and forwards it to the IRS for further review.
ďTaxpayers contacted by the private debt collector will have the same rights as if they were contacted by an IRS employee,Ē says the agency.
Thereís plenty of help available in finishing up your taxes:
www.irs.gov or (800) TAX FORM
Tax forms, publications, IRS rules and regulations, plus copies of your original returns for the past six years.
These two groups can help you get organized for next year:
National Association of Enrolled Agents
American Institute of Certified Public Accountants