What to do when you can't pay on time
Warm and cuddly the IRS may never be. But the agency is promising to be more understanding now that even straight-arrow taxpayers may be pressed by the economic downturn.
It isn't offering amnesty on tax owed or related penalties and interest. But the agency does say it will consider giving honest but beleaguered people who perhaps fell behind in withholding or estimated payments more time and flexibility to settle up.
"We want to go the extra mile," said IRS Commissioner Doug Shulman.
Among the loosened rules:
IRS personnel have more leeway to suspend collection efforts in hardship cases - such as loss of a job, severely shrunken income, or debilitating medical bills.
Taxpayers can get a temporary pass to miss or reduce a scheduled installment payment if they are already making regular payments to clear up back tax.
The IRS will reconsider the value of a home to reflect a distressed market value when judging whether a taxpayer's extremely dire financial situation may justify settlement of a tax debt for less than what's owed.
It will also release a tax lien on a home to make a sale or mortgage refinancing easier.
Reality check: While in some hardship cases the IRS may agree to accept less than is owed, such an "offer in compromise" is much harder to get than some TV ads by tax advisers proclaim. Payment options to consider, says Jim Keller, a senior tax analyst at Thomson Reuters, are an installment agreement with the IRS, borrowing from family, tapping a home equity line of credit, or using a credit card.
"You are going to have debt any way you look at it; it just depends on who you want to owe it to," he says.
It's not clear yet how extensively the options are being utilized, but accountants and lawyers who deal with the IRS are optimistic, at least as far as small cases are concerned.
"If you have filed an accurate return, my sense is they may give you more of a break than in the past, but if you're not filing accurate returns or things are coming up in an audit, it may be just the opposite," says attorney Ian Comisky, author of the authoritative two-volume textbook "Tax Fraud and Evasion."
Filing a return on time without paying tax owed is better than not filing at all, Keller says. A couple who owes $5,000 in tax could face a penalty of $750 if they, for example, file three months beyond the deadline, but only $75 if they file on time and pay three months later, he says. 