Top Tips for When You Can’t Pay Your Taxes– March 31, 2015 by Angel Rice

It can happen to the best of us. Business cycles change, cash reserves run low and suddenly (or so it seems) your taxes come due when cash is short. But ignoring the problem is not an option. Below are a few key tips to help you and your accountant work with the IRS to make the best payment deal possible.

  1. Be honest from the start. Communicate immediately with your tax advisor if you don’t think you can pay your tax obligation. If you’ve been upfront and honest with all parties from the start, your tax advisor should be able to negotiate effectively and make a compelling case to help you reach an acceptable agreement.
  2. File your tax returns by the appropriate deadline — even if you can’t pay. Even if you can’t pay the tax owed, filing on time will allow you to avoid the 4.5 percent monthly late filing fee. That fee can increase your taxes due by up to 22.5 percent.

    But filing by your deadline won’t let you escape from accruing a 0.5 percent monthly late payment penalty, which will max out at 25 percent of the total taxes due. Taxpayers will likely also owe interest on top of this amount. The IRS will keep you abreast of the mounting consequences. When a return is filed without a payment, the IRS begins sending out “friendly reminder notices.” Take them seriously; if the amount remains unpaid for too long, these notices will eventually warn of levies on assets, seizure of IRS refunds, federal tax liens, and wage and social security garnishment.
  3. Consider giving your accountant power of attorney. A strategic move to consider early on is giving your accountant power of attorney, so he or she can talk to the IRS on your behalf. Having an intermediary can be helpful in a difficult negotiation. This action will also put collection activity on hold while your accountant and the IRS attempt to work out payment arrangements. A payment plan doesn’t prevent interest from building on the debt, but it does prevent the IRS from seeking any levies on assets. (But, keep in mind, if you miss a payment you will be in default, and the IRS can come after you for everything you owe all at once.)

Seasoned accountants can help provide you with options and alternatives to help strike a deal with the IRS, such as, in severe cases, offering an asset as collateral, such as a second home, in lieu of cash payment. Or, when the IRS believes it cannot collect the full tax obligation, your accountant may be able to negotiate a lesser amount.

While the IRS has earned a reputation for being tough on delinquent taxpayers, agents today have more discretion in considering taxpayers’ special circumstances when negotiating payment scenarios. Every situation is different. But with the right strategy and planning, the chances of achieving a fair settlement are better than ever.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Angel Rice at or a member of your service team for further discussion.

This communication is published by Cohen & Company for our clients and professional associates. Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this publication should be taken only after a detailed review of the specific facts and circumstances.