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Thursday, February 24, 2011

IRS forms to file if you can't pay your income tax on time

Forms to file if you can't pay your income taxes include payment extension, filing extension, installment payments, bankruptcy circumstances, and the tax return with its additional forms if applicable. Generally if tax can't be paid it is a good idea to file the applicable form relating to your specific situation. 

If you need more time to make payments but don't qualify for financial hardship a form 9465 may be used in some cases. However, if you are simply in doubt of how much tax you owe due to a need to gather information after April 15th a tax extension with estimated taxes due and paid may be more appropriate. Some of the forms that may apply to your situation are listed below:

IRS Form 1127
'Application for extension of time for payment of tax due to financial hardship':. Must be filed by April 15th tax filing deadline. 1040's may not be required when this form is filed however qualification and payment extension time is limited to financial hardship and a maximum of 6 months. Additional and/or supplementary information is required with this form.

IRS Form 656
'Offer in Compromise': This is an offer made to the IRS for individuals and/or households in the process of filing for bankruptcy. Form 656-B contains instructions and guidelines for filing Form 656. A sizable application fee is required for this form and a percentage of the offer amount may also be required.

IRS Form 9465

'Installment Agreement Request': Applications that are approved by the IRS are given a monthly amount due to the IRS. These installments are billed monthly with interest following approval of the installment agreement.

IRS Form 4868
'Application for Automatic Extension': Some payment is still due with application for filing extensions. Remaining balances may be charged penalty fees and interest lower than the standard penalty percentage if not part of accurately estimated tax due as per Form 4868 instructions.

IRS Form 2350
'Application for automatic extension for U.S. Citizens and Residents Residing Overseas': and similar to a form 4868. Specific time of extension requested is listed on the form itself and an interest penalty is incurred for late filing of the extension form.

IRS Form 1040
'U.S. Individual Tax Return': This form is filed with Form 9465 and contains income and adjustment information for the applicable tax year. Some forms such as tax filing extensions explicitly do not require a 1040 at the time extension is filed for.

Form and late payment related tips

• English and Spanish, the Spanish forms have 'SP' at the end of the form number. For example, Form 4868 would be Form 4868-SP for Spanish.

• Application for installment has a fee associated with it and also charges interest on the remaining balance. For small amounts the interest plus the fee could increase the amount of tax owed significantly.

• Installment payments can be made online for free through the 'Electronic Federal Tax Payment System (EFTS)'. However, payment for new users of this system may not be instant because pin numbers and identification codes are sent via mail.

• Tax filing extensions are different from tax payment extensions. Tax filing extensions still require payment of taxes.

• Personal statements that are considered valid by the U.S. Internal Revenue Service may lead to a waiving of late payment penalty according to Form 2350's instructions.

• If tax can be paid within four months of the April 15th deadline it is more affordable and not necessary to file a form 9465.

Late payments on tax owed to the U.S. Internal Revenue Service usually end up costing more than the initial tax with interest, penalties and fees. Information on tax filing penalties can be viewed at this IRS penalties and interest charges link. Paying on time may be the better option if it is possible. However, in circumstances where payment in full cannot be made by the tax filing deadline, one or more of the above forms may need to be accurately completed and sent to the appropriate IRS service center. 

These service centers are divided by region. In any case, when in doubt and to confirm you are using the right form contacting an IRS service center or tax professional can be of assistance. The IRS contact information can be viewed at the following link for additional information. 

Source: http://www.irs.gov