Owe Back Taxes Know Your Options

About 25% of all Americans owe back taxes. If you’re among them, then you know how nerve-racking it can be, whatever the amount.

The problem for most people is they perceive the IRS as “out to get them”. The IRS can be confusing, but they’re not malicious, and they do occasionally make mistakes.

If you receive a notice from the IRS claiming you owe back taxes, and you don’t understand or disagree with their claim, the first thing you should do is contact them in writing. Leaving a paper trail is very important, and taking the time to carefully and specifically write out your questions can help you organize your thoughts in a calm and rational manner.

Be brief and specific. The IRS won’t be swayed by a rambling discussion of your financial problems, but they do need your name and social security number or tax ID. You can refer to their notice by the date it was sent and the reference number in the top right-hand corner.

Also try to remember to be polite. You’re not addressing the IRS as a faceless, demanding entity – you’re writing a letter to another person employed by the IRS. If you treat them with respect and courtesy, you’re much more likely to have your complaints heard and resolved.

Now let’s assume you owe a debt to the IRS, but you can’t pay it in full. What can you do?

Well, you can ignore it and hope it goes away, which it won’t. This is the route most often taken and it can cost you thousands over the course of a year. As with anything else, taking some kind of action to investigate and resolve the issue is far better than doing nothing.

You can contact the IRS, by phone or in writing, and request an installment agreement. Explain in brief, unemotional terms that you accept the fact you owe taxes, but you can’t afford to pay your balance in full at this time.

The IRS offers two forms of installment agreements: formal and informal. A formal agreement involves completing an IRS financial statement form which will determine the amount you can afford to pay each month, based on income and allowable expenses. Notice of a lien against your property is recorded in your local register of deeds’ office, which may make it difficult to sell assets or obtain a loan until the debt is fully paid.

An informal agreement consists of a promise to pay the full amount within 24 months. In an informal agreement, the IRS does not record a notice of tax lien against you. While this may sound more convenient, the option is only available if the IRS agrees to it and if you can be absolutely sure to pay the full amount.

Going back to the widely held misconception that the IRS is “out to get you”, let’s assume your attempts to handle the matter directly have failed. This does happen sometimes. You owe a debt you cannot pay, and the IRS is not cooperating or not communicating with you. What do you do?

Your best option is to contact a tax resolution firm, such as this one, and work with a consultant to obtain an offer in compromise. An offer in compromise, or OIC, is a method by which the amount you owe is reduced.

OICs are considered by the IRS when tax liability or collectability of the debt is in doubt. In other words, if they’re not absolutely sure about how much you owe, or if they believe you might never pay, they could settle for an OIC.

Your tax consultant will offer an amount to the IRS to settle the debt and clear your name. If the offer is accepted, hooray – you can start over next tax year with a clean payment record. There is a chance the offer will be rejected, however.

Do you owe back taxes? Are you doing anything to solve the problem? You can speak with a consultant from Levy and Associates right now. Doing nothing doesn’t solve the problem – make the call today.