TEXT OF INTERVIEW

Tess Vigeland: I hope it is a surprise to no one that Tax Day is Tuesday, April 15.

If you’ve waited until the last-minute to file, it’s probably because you owe, but what happens if you can’t pay the tab?

Here with some answers is Andrea Coombes of Dow Jones Marketwatch.com.

Vigeland: First, explain for us the difference between failure-to-file and failure-to-pay.

Andrea Coombes: There’s a big different in terms of how it affects your wallet. So the IRS really frowns upon people who don’t file a return, they really don’t like that and they will charge a hefty penalty if you don’t file a return: it’s 5 percent of your bill per month, up to a total of 25 percent of what you owe. Now if you don’t pay what you owe, then the penalty that you’ll have to pay is one half of 1 percent per month, up to 25 percent of your bill, so it accrues much slower. You’re really much better off if you’re afraid you’re not going to be able to pay your tax bill, you’re much better off going ahead and filing a return, letting the IRS know that you are there, you’re on top of it, you’re trying to do something, you’re at least contacting them and then start thinking about your payment options and there are a few options out there

Vigeland: Well let’s talk about those. You don’t have the cash right now, what do you do? Put it on plastic?

Coombes: That is one option. I hesitate to recommend using your credit cards, but it might be the lowest cost option for some people. It depends a lot on the fee. There’s a fee to use a credit card to pay your IRS bill. You will pay a fee up to 3 percent; they call it a convenience fee.

Vigeland: They sound just like the credit card companies!

Coombes: It’s strangely similar, actually. Now, the IRS also offers payment plans. They charge an interest rate and they charge a fee, often, not always.

Vigeland: So this is kind of like an installment plan, then?

Coombes: Exactly. Now, the IRS offers one type of plan that’s actually free in that there is no fee. You can apply online. You will owe penalties and interest. Right now, the IRS interest rate is 6 percent — that does change quarterly. You know, 6 percent is not so bad if you’re looking at a credit card rate of 13 percent. Again, it depends on what your situation is.

Vigeland: OK, then let’s go to the worst case scenario: you do your taxes and you’ve made just a really, really bad error or decision or something like that and you owe all kinds of money that you simply don’t have. Does the IRS ever actually forgive any portion of what you owe?

Coombes: They will forgive debt. It’s getting harder to do this. There are two options. One is an offer in compromise or a partial payment installment plan. The partial payment installment plan, there’s a form you can use. It’s a lot more work in terms of just applying for it, because you have to provide a lot more of your financial records. You have to show the IRS your reasons why you cannot pay this bill — maybe it’s very steep medical costs or you just lost your job. The offer in compromise is valuable in that if you can get the IRS to agree to one with you, basically it’s a new contract. Your old bill kind of falls away and what you have is this specific dollar amount that you’re going to pay and interest and penalties aren’t accruing over time, so it’s beneficial to you, an offer in compromise, and it can happen, it’s just pretty rare and getting a little bit harder to do, I have to say.

Vigeland: Andrea Coombes is a personal financial editor with Dow Jones Marketwatch.com. You finish your taxes yet?

Coombes: Not quite yet. This weekend. As a journalist, I worked ’til deadline.

Vigeland: Alright, well thanks for the help.

Coombes: Thank you Tess.