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Time to pay the IRS
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May 4, 1999: 3:17 p.m. ET
If you've put off taking care of your taxes, now is the time to start on them
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NEW YORK (CNNfn) - If you lived dangerously and chose to put off the Internal Revenue Service for a couple of weeks since Tax Day, it's time to start taking care of your tax issues.
If the guilt isn't enough to make you handle your taxes, penalties and interest payments should be enough to motivate you.
The Internal Revenue Service offers plenty of chances giving the late filer a break if he or she needs it.
Most tardy taxpayers take the Form 4868 route. This form gives you an automatic extension of four months in which to file your taxes, making your new tax day August 16 this year.
If you merely filled out the form by April 15 and patted yourself on back for averting taxes for yet a few more months, think again.
According to Cindy Frailing, spokeswoman for the National Association of Tax Practioners, some taxpayers don't fully understand the implications of Form 4868.
When you filed your Form 4868, you were asked to estimate your overall tax liability and pay that amount, a difficult sum to estimate if you haven't gathered your tax forms, records and W-2s and made the calculations.
According to the regulations, if you didn't pay your full tax liability when you handed in the form, you are now racking up late payment fees of 0.5 percent monthly on your outstanding tax liability.
In addition, the IRS will be charging you 8 percent in interest, compounded daily, on that amount as well -- an interest rate which can change from quarter to quarter.
However, the IRS gives you some breaks, said Frailing.
"If you've paid at least 90 percent of your current tax liability by April 15 or 100 percent of the previous year's taxes, you won't have to pay the late payment [0.5 percent] fee," said Frailing.
Failing to file
If you haven't bothered to file an extension and hoped to escape the radar of the IRS you're fighting a losing battle, said Barbara Raasch, a tax partner at Ernst & Young.
"They will notice," warned Raasch.
"If you've filed tax returns in the past they're going to wonder why you haven't this year," she said, noting that your employer or other people who've paid money to you will have notified Uncle Sam of those payments.
The penalty for failing to file is steep, and you'll have to shell out 5 percent a month of your tax liability in addition to the other various interest payment and charges.
While it's too late to do anything about it for your 1998 returns, tax experts say there's really no good reason to incur these failure-to-file penalties. With form 4868, you don't even have to supply a reason for needing an extension.
Additionally, if you need even more time, you can file Form 2688, truly the tax form of the procrastinator.
Using 2688, you can apply for another four-month extension but this time, you'll need to give a reason why you need the extra time. The IRS is reluctant to grant such an extension unless you can prove extreme hardship so don't plan on it to save you from mere slothfulness.
Breathing room
Despite its hard-nosed, bureaucratic reputation, the IRS does indeed offer some other limited flexibility as you now attempt to pay your taxes.
Gail Winawer, an individual tax partner at Goldstein Golub Kessler & Co., said that the agency may waive late payment fees if you can prove that some outside entity (for example, your brokerage) didn't give you the information you needed to correctly calculate your taxes.
Still unsure how you're going to pay the chunk of taxes you owe? Winawer suggests working it out with the IRS.
"You can come to an installment agreement," said Winawer. "They'll work with you provided you don't have the money to pay it somewhere and aren't playing games."
After applying for an installment plan, the IRS will ask you for bank records and other cash flow information and, if they're satisfied with your financial picture, they'll arrange an installment agreement.
Such an agreement will still involve paying the normal interest -- in this case, 8 percent -- but will mean you won't have to make the late payment fees of 0.5 percent per month.
The important thing, say tax experts, is to keep in touch with the IRS and make sure they know you're willing to take on your tax burden, even if you can't pay it in full.
"It just makes sense that the IRS wouldn't pick on people who are really trying to pay their taxes," said Raasch. "There are plenty of other people they need to go after." 
-- by staff writer Randall J. Schultz
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