If you can't pay your federal income taxes, you should still file your annual tax return. Pay what you can since any partial payment reduces the amount of taxes on which you have to pay penalties. In fact, the penalty for failing to file can be up to 25 percent, while the penalty for failure to pay is generally one-half of 1 percent per month. If you can't pay, you'll need to make special arrangements with the Internal Revenue Service, or IRS (I-R-S). In many cases, the IRS will accept a repayment plan, allowing you to make payments over time. To request a payment schedule, attach a completed 'installment agreement request' or a written request for a payment plan. You should specify how much you will pay and when you expect to make payments. Within 30 days, the IRS should notify you regarding your plan. The balance due will be subject to accrued interest, just like most loans. In a few cases, you can enter into an Offer in Compromise, which is a type of settlement between you, the taxpayer, and the federal government. This process allows you to negotiate with the IRS regarding the payment of your taxes. For some taxpayers, this means making payments with interest, but in a few cases, the IRS may accept as little as one percent of the taxes owed. To qualify for this offer, there must be some doubt about the ability of the IRS to collect the taxes from you or uncertainty that you actually owe the taxes specified. If you can't afford to pay your taxes, you might also consider filing bankruptcy or taking out a loan. Regardless of the method you choose, make sure you contact the IRS regarding taxes owed, even if you can't afford to pay them.
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