With talk of the possibility the economy could take a second dip into recession, it may be some comfort to know that the Internal Revenue Service feels your pain.
The federal agency charged with dunning taxpayers for their annual contributions has actually streamlined some procedures and softened some requirements to make it easier for folks to cope in these hard times.
Joseph A. Pancerella said he has seen evidence of a kinder, gentler IRS firsthand.
Pancerella, a certified public accountant and financial planner with offices in Shillington and Exton, Chester County, said he has recently seen people lose 90 percent of their business in just a year.
"Imagine going from doing $5 million to $6 million a year to not quite $1 million," he said.
The same is true for a homeowner who loses a job and is struggling to make mortgage payments.
"Not everybody is irresponsible," Pancerella said. "Not everyone is going to walk away from their mortgage."
Those who don't can, in the process of trying to do the right thing, dig themselves an even bigger hole in the form of unanticipated taxes, he said.
The IRS has tried to make it easier for taxpayers to settle up by making a so-called offer-in-compromise.
If you're not familiar, an offer-in-compromise is just what it sounds like.
If you owe federal taxes and, because of a financial setback, there is little if any chance of you paying the debt, you can ask the IRS to accept a portion of what you owe to settle your tax bill. This year, the agency has made it easier to qualify for the program.
The IRS took the measures because it is aware that some taxpayers have been struggling to meet their obligations in the wake of the country's economic downturn, said Jennifer A. Jenkins, an agency spokeswoman.
"To ease the burden on some who are feeling the financial pinch the most, the IRS streamlined and expanded its offer-in-compromise program," Jenkins said.
For example, in the past taxpayers needed to have a tax liability of less than $25,000 to participate in the program. The tax liability limit is now $50,000. Also, taxpayers must have incomes of $100,000 or less to be considered for the program.
"OICs still are subject to acceptance based on legal requirements and consideration of the taxpayer's ability to pay the tax owed," she said.
Another added benefit helps taxpayers already making payment on an offer-in-compromise who are now having trouble making their payments.
Taxpayers can now apply to renegotiate an existing offer to get more manageable payments based on their current financial situation.
Pancerella said taxpayers often run into trouble when they dip into their retirement savings to pay bills or make mortgage payments.
The fund trustee is responsible for taking a 20 percent tax bite out of funds withdrawn from a 401(k) or other retirement account, but the taxpayer also is responsible for income tax and another 10 percent penalty for withdrawing money before retirement age.
The total tax on a withdrawal of $100,000, for example, is about $21,000, but the trustee deducts only about $12,000. The taxpayer still must pay income tax and the excise tax, which amounts to another $9,000 in federal taxes, Pancerella said.
"Believe me, if you're taking money out of your retirement account you don't have $9,000 to pay the IRS," he said.
That is why taxpayers should consider all of the remedies available to them, including an offer-in-compromise, before taking cash out of their retirement funds.
IRS employees are now permitted to consider a taxpayer's current income and potential for future income when deciding on an offer-in-compromise, Jenkins said.
Normally, the standard practice is to judge an offer amount on a taxpayer's earnings in prior years. This new step provides greater flexibility when considering offers-in-compromise from the unemployed.
The IRS may require that a taxpayer entering into such a plan agree to pay more if the taxpayer's financial situation improves significantly, Jenkins said.