IRS Notice CP14: What It Means and How to Respond

You've received an IRS Notice CP14. What does this mean and how should you respond? Here is what you need to know.

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Most letters from the IRS don't bode well – but IRS Notice CP14 is an exceptionally notorious example, as it means that the IRS has found that your tax account currently has a balance due with the federal government. In other words, you have a tax debt to settle due to unpaid taxes.

Don't panic.

This is not an indictment. Even on the IRS's part, simple mistakes and miscalculations can lead to a small tax debt. If you owe unpaid taxes, then your first steps should be to take a deep breath and read on.

How could this have happened?

There are a few reasons a taxpayer may incur a tax debt with the IRS, even after sending in their quarterly checks or getting their taxes withheld on every paycheck. Mistakes on your tax return, for example, can lead to more taxes than you might have expected to pay.

Thankfully, Notice CP14 is not a last warning letter from the IRS. Most of the time, your IRS Notice CP14 will include a few key bits of information that are critically important:

 

What Will the IRS Do Next? 

It will wait for a response.

For the IRS, the best-case scenario is that a taxpayer receiving the notice will pay their due balance. You can do so via a mailed check, by visiting an IRS office, or, most conveniently, over the internet. No fuss, no muss, and you're avoiding any potential penalties or interest rates that might otherwise be headed your way.

If you ignore the IRS Notice CP14 or wait too long, the IRS will begin applying pressure on your account by raising your debt with monthly penalties. The monthly penalty for failing to pay the full amount of your owed taxes by the due date is 0.5 percent, up to a cumulative 25 percent after fifty months. If you're late by even a few days, that first 0.5 percent will apply.

In addition to penalties, your balance owed will begin to incur interest. The interest rate for a debt with the IRS depends on a quarterly rate change, which can be reviewed online via the IRS's newsroom page.

 

What Is A CP14 Notice?

A CP14 notice is a letter sent by the Internal Revenue Service (IRS) informing you that you owe money on unpaid taxes.

This is the most common notice sent to taxpayers, and it's a formal letter letting the taxpayer know that they owe the IRS $5 or more. The notice will usually contain a detailed explanation of any interest and penalties that have accrued to date and how they were calculated. The CP14 notice will outline how much is owed to the IRS as well as how to pay and payment plan options.

If you receive a CP14 notice, you should either pay the amount you owe, establish a payment plan, or call the IRS if you disagree with the amount. If you miss the deadline specified in the notice, the IRS may take further actions.

 

How You Should Respond to IRS Notice CP14

As your debt grows, the IRS may resort to increasingly invasive collection efforts. Because these collection efforts can severely hamper your ability to gain financing and indirectly affect your credit, not to mention lead to future bank levies, it's usually advised to work with the IRS (through an experienced tax professional) to pay off your debt as soon as possible.

With assistance, you can seek financing to pay off your IRS balance. Under most circumstances, banks offer lower monthly interest rates than the federal government does.

Ignoring the IRS Notice CP14, or taking too long to respond, is a bad idea. If you feel that the IRS made a mistake, and if you can prove (or wish to prove) that you do not owe additional taxes, speak with a tax professional as soon as possible.

You do have the option of appealing your debt with the IRS in an independent appeals process, and if that fails, you can still take the IRS on in US tax court.

Note that litigation is not a preferred method for dealing with the IRS, especially if the debt is insignificant or if the details of the situation are rather straightforward. But if you feel a mistake has been made, discussing it with the IRS via a tax attorney or tax advocate may lead to the elimination of your debt.

 

Payment Plans

Alternatively, you should enter into a payment plan with the IRS as soon as you can. Entering into a payment plan with the IRS reduces your interest rate and monthly penalties and can even lead to a tax lien release (if the IRS has placed one federal tax lien on you).

Payment plans with the IRS are either:

If you have not previously been in debt with the IRS, and have never defaulted on an installment agreement or IRS payment plan, then you can seek to get your penalties written off as a first-time courtesy. This way, the remaining balance of your debt is reduced to what it was originally on the IRS Notice CP14.

Note that you can technically owe money to the IRS several times if you missed payments or made mistakes on your return on multiple occasions. You can consolidate these debts into one payment plan by speaking with the IRS.

If you are also late with your tax returns or have missed several tax returns, the IRS will inform you that you must file these as soon as possible before being allowed to enter into a payment plan.

Do not make the mistake of failing to file your return because you cannot pay your back taxes. Even if you're in debt with the IRS, you need to continue to file your tax returns to be eligible to qualify for a payment plan.

 

Can't Pay? 

If your tax debt continues to grow and becomes unmanageable – or if a massive financial setback has you in dire straits, without the means to pay the government what you owe – then you've found yourself in a truly desperate position.

Thankfully, there are ways to negotiate for a reduced debt with the IRS. The first is to work with a tax expert to write up an offer in compromise.

This is a payment plan drafted by the indebted taxpayer to the IRS, based on what they are financially capable of paying monthly until the tax debt reaches its statute of limitations (10 years after the tax filing and assessment date, plus tolling periods).

You can also use an IRS pre-qualifying tool to determine if you might be eligible. Note that this is no guarantee that the IRS will accept your offer. Your tax debt will continue to grow while the IRS deliberates your offer.

If you need an immediate reprieve from the IRS's collection efforts, you can also consider filing as currently not collectible. If eligible, the IRS will halt any levies filed against you until your financial situation improves. Your tax debt will not age during this time (but will continue to accumulate penalties and interest).

If you have received an IRS Notice CP14, contact the professional tax attorneys at Rush Tax Resolution today.

Can You Have 2 Installment Agreements With the IRS?

If you are experiencing tax debt and owe money to the IRS, you have the option of creating a payment plan, also called an installment agreement; but can you have 2 installment agreements with the IRS?

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Can you have 2 installment agreements with the IRS? Not exactly. When you owe taxes, the IRS allows you to reduce your penalties and interest rate while paying down your balance over time via an installment agreement. As long as you adhere to the terms of the agreement, you can avoid further collection actions and work your way through your debt at a reasonable pace.

If you've realized that, due to financial constraints, you're unable to pay your taxes for a subsequent year, you can choose to fold your debt into your existing installment agreement.

To reiterate – you cannot have two installment agreements with the IRS. However, you can pay off more than one tax debt through your existing installment payment.

When you owe the government money, the IRS marks a deficit on your tax account. Further debt accrued simply increases that balance due. Your installment payment can be altered to reflect a change in your balance. You can request this change by contacting the IRS directly, through your local IRS office, with the help of a professional IRS tax attorney or by calling 1-800-829-7650. Alternatively, you can fill out Form 9465 with the requested relevant information.

 

What Is An IRS Installment Agreement?

An IRS Installment Agreement is a payment plan that you set up with the U.S. Internal Revenue Service (IRS) to pay your federal tax debt over time. It's designed for taxpayers who cannot pay their entire tax debt in a single lump sum.

There are different types of installment agreements, including:

Guaranteed Installment Agreement

This applies if you owe less than $10,000, excluding penalties and interest, have not had an installment agreement in the past five years, and can pay the full amount within three years.

Streamlined Installment Agreement

This applies if you owe $50,000 or less, and can pay the full amount within 72 months (six years).

Partial Payment Installment Agreement (PPIA)

This allows you to make monthly payments towards your debt that are based on what you can actually afford after accounting for your essential living expenses.

Non-Streamlined Installment Agreement

This applies if you owe over $50,000 and/or cannot meet the payment terms of the other types of agreements.

 

How Do IRS Installment Agreements Work? 

Tax debt is a severe problem. The IRS takes its duty to collect taxes very seriously – and has the means to take priority over other creditors when it seeks to collect what is due.

As a taxpayer, you have an obligation to pay your taxes on time. Failure to do so can result in financial penalties and accruing interest. Intentionally avoiding tax payments can even be a crime.

As your tax debt grows, the IRS will continue to take increasingly drastic measures to try and collect what is owed.

While you cannot have 2 installment agreements with the IRS, a payment plan allows you to avoid further collection actions and work on paying off your debt. There are two ways to enter into an installment agreement with the IRS:

1. Short-term payment plan:

Any payment plan that stipulates total payment within 180 days, usually in the form of one or more lump sums.

2. Long-term payment plan:

A monthly installment payment plan of any length longer than 180 days (up until the debt is paid or hits its statute of limitations).

An installment agreement can be set up entirely online or via mail or phone. You can also set up an installment agreement in person. Under most circumstances, it is cheapest to set up an installment agreement electronically. Currently, however, short-term payment plans can only be set up via mail or phone.

There are limits to how hefty a taxpayer's debt can be for certain payment plans. For example, taxpayers with a total tax debt exceeding $50,000 do not have the option of paying their debt through a monthly payment plan. It is also worth noting that tax balances over $25,000 must be paid via Direct Debit.

Note that there are a few stringent requirements for entering into a payment plan, and there are several things you should note if you wish to avoid defaulting.

 

Installment Agreement Requirements

One of the most important requirements is that you are completely up to date with your tax returns.

Even if you can't pay your taxes, the IRS will not accept an installment agreement unless you're caught up with all of your returns, so it is imperative that you do not have any unfiled tax returns. The IRS will check at least the last three years, and generally up to six years, to determine if you've been keeping up with your returns and are eligible for an installment agreement.

Being late or accruing an additional tax debt without requesting that it be added to your previous tax balance can lead to a default. Setup fees can be waived if you qualify as a low-income taxpayer. Other tips include:

How To Apply For An Installment Agreement

To apply for an IRS installment agreement, you have a few options depending on your situation.

  1. Online Application: The fastest and most convenient way to apply for a short- or long-term payment plan is online. To do this, log in to the Online installment agreement IRS Form on the IRS website. This method is only applicable if you've filed all of your tax returns, you owe $50,000 or less, and you can pay off what you owe.
  2. IRS Form 9465: If you prefer not to use the online tool, you can fill out IRS Form 9465, the Installment Agreement Request form. After completing the form, mail it to the IRS for review.
  3. Phone Application: You can also apply for an installment agreement over the phone.

Before applying, ensure you're eligible to set up a payment plan. For instance, you must have filed all required tax returns. Also, bear in mind that there might be limitations on having multiple installment agreements with the IRS.

 

What if I Don't Pay? 

A default in a payment plan means the IRS will continue to levy collection actions against you. These range from a federal tax lien (a public notice letting the government take priority over all current and future creditors, making it harder to seek financing or loans) to a levy on your assets or wages.

 

What if I Can't Pay? 

If you cannot afford to pay off the entire debt over the course of its lifetime (ten years from the date of assessment on your initial notice, plus tolling periods), the IRS may consider an Offer in Compromise.

 

Considering an Offer in Compromise

An Offer in Compromise is a payment plan specifically built to allow you to avoid financial hardship while dedicating nearly all non-essential assets and income to your debt. The IRS takes assessing these offers very seriously and will not accept an offer that they consider to be too low based on the information you provide them.

If you do consider an Offer in Compromise, it is in your best interest to speak to a tax professional. The IRS will not levy collection actions against you while evaluating your offer, but your debt will continue to accrue penalties and interest. Put your best foot forward by working with an experienced professional to set up an offer.

 

How To Make Changes To an IRS Payment Plan

If you need to make changes to an IRS payment plan, you can follow these steps:

  1. Understand Your Options: The IRS provides several options for making changes to a payment plan. You can revise your monthly payment amount, change your monthly payment due date, or convert an existing agreement to a Direct Debit agreement.
  2. Online Payment Agreement (OPA) System: If you have an existing installment agreement, you can use the OPA system on the IRS website to make changes.
    • Visit the IRS website and log into your account.
    • Select "View or Change Your Existing Agreement".
    • Follow the prompts to update your agreement.
  3. Form 9465 Installment Agreement Request: If you cannot use the OPA system, you can complete Form 9465 and mail it to the IRS. This form allows you to propose your own terms for a new installment agreement.
  4. IRS Customer Service: You can also call the IRS customer service line for help with modifying your payment plan.

Remember, it's essential to keep making your current payments until your request is approved to avoid penalties.

 

Exploring Other Options and Navigating the IRS 

The IRS does not leave much room for interpretation when it comes to tax debts – you will have to somehow pay off your balance, sooner or later, and always to the best of your abilities.

An experienced tax professional can navigate the IRS's rules, statutes, and payment options to help you find the best way to eliminate your tax debt. Take the guesswork out of paying off your debt by speaking with a tax professional today.

 

CONTACT RUSH TAX RESOLUTION TODAY!

When Does Payment Deferral, or CNC Status, End With the IRS?

Let's say you owe the IRS a significant tax debt but no longer earn an income or barely enough to afford room and board while possessing no significant assets. Can the IRS force you to pay? Or can they take the shirt off your back? Can they take every penny you earn and leave you breadless? The answer is no because of payment deferral or CNC Status.

There are limits to what the IRS can do regarding financial hardship or even abject poverty. The IRS cannot squeeze someone in indigency for savings they do not have, the same way you cannot squeeze blood from a stone. When a person qualifies for severe financial hardship or fulfills specific other financial requirements, they receive payment deferral and become uncollectable.

Being uncollectable in the eyes of the IRS acts as a payment deferral – meaning the IRS cannot ask you to pay your back taxes. The catch? There is none, except that being uncollectable is usually temporary, and the IRS will demand payment – with penalties and interest – once your finances improve. There are a few other key pieces of information to keep in mind.

Why Is Payment Deferral Necessary?

Qualifying for CNC, or payment deferral, requires the IRS to determine that you cannot reasonably pay them, even monthly, for what you owe in taxes. This does not preclude you from continuing to do your duty as a taxpayer, including filing your tax returns.

To qualify for payment deferral, you must contact the IRS and request CNC status. The IRS will require you to fill out an IRS Form 433A or 433F to take a closer look at your financial details. If you meet eligibility, they will leave you alone, so to speak.

Eligibility depends on the circumstances you are in. The main qualifier for payment deferral is "financial hardship." This generally comes down to: can you afford to give the IRS anything without struggling to pay for food and a roof over your head?

What Qualifies as Financial Hardship for Payment Deferral?

More concretely and less dramatically, the IRS will determine eligibility if your financial information indicates that making any monthly commitment towards your tax debt will realistically result in "serious privation," meaning you likely cannot afford food, rent, utilities, or other basics. The individual threshold the IRS sets for these expenses depends on your sources of income, the number of dependents you have, and where you live.

If you qualify for any refunds or tax breaks, the IRS will automatically take these and deduct them from your debt or hold onto them until your tax debt is paid off. If you don't earn enough income to incur income taxes, then your tax debt will not increase – but if you incur additional tax debt, you can call the IRS to roll it into your existing total debt and continue to adhere to the CNC status.

Your tax debt does not stand still while you are uncollectable. It will grow due to penalties (failure to pay the penalty is about 0.5 percent per month and will be, at most, a total of 25 percent) and the quarterly interest rate. If you owe more than $10,000, the IRS will place a tax lien on you and your tax account.

How Often Does the IRS Test Collectability?

After closely examining your financial information, the IRS will usually attach a qualifying flag to your tax account. This basically means that as your situation improves, the IRS will be automatically alerted on your next tax return and may resume its collection actions against you until you decide to start a payment plan.

The IRS determines whether you are ready for collection via your gross income, or your Total Positive Income, as reported on your tax return. If you do not send in a tax return, the IRS will use information returns from other institutions – such as banks, businesses, and so on – to make an educated guess. If your finances did not improve within a given tax year, the IRS would be forced to keep you in an uncollectable status.

Can You Avoid a Tax Levy With Payment Deferral?

You cannot avoid a tax lien while Currently Not Collectible – but you can avoid levies. The IRS cannot claim assets you do not have and cannot issue a bank levy if it means you won't have any money left to pay for water or electricity the next month. The IRS cannot start garnishing your wages if you don't earn enough to meet their threshold for wage garnishment.

In general, a CNC status keeps the IRS from issuing any serious collection actions against you. But it is a temporary measure. The point is to keep tabs on you while you work your way out of your situation and to where the IRS can collect its debt.

Can Your Tax Debt Expire While Currently Not Collectible?

There’s no point in keeping tabs on someone who will never be able to pay back their debt. The IRS does let the timer run out on your debt while you are uncollectable in CNC status, provided you are continuously struggling financially.

While this does mean you can avoid paying back tax debt, the circumstances under which you can do so require you (and any loved ones that live with you) to live on the bare minimum for multiple years. It is always better to work on an offer in compromise if the option is open to you.

What If I Can’t Pay?

Your tax debt is not set in stone. Working with a tax professional at Rush Tax Resolutions can help you open doors towards alternative tax debt resolution options, such as a partial payment plan or an offer in compromise.

Currently not collectible statuses, offers in compromise, and other payment plans all use the same Collection Information Statement forms to determine eligibility, with a few unique questions between them. Nevertheless, getting the IRS to agree to a limited back payment rather than waiting for your financial situation to improve further can be difficult. You may need to check in with a pre-qualifier tool or talk things through with a tax professional to determine if your circumstances are right.

Tax Debt Relief Options to Be Grateful for This Thanksgiving and Beyond

Thanksgiving is a time for gratitude, and a time for reflection, as we draw closer to winter and a new year. For many people, the end of the year is a great time to wrap up loose ends and prepare for a fresh start. That means taking care of old debts and liabilities. Being in debt is never a great feeling. But being in tax debt is often worse. While the government stops short of breaking your legs, it can be a ruthless creditor.

Organizations like the IRS can command high-interest rates and hefty penalties for ongoing late payments and missed returns. Staying on top of your duties as a taxpayer is your responsibility, and if you mess it up, you pay – sometimes even with jail time. But thankfully, there are tax debt relief offerings available that are worth considering, and sometimes even at a lower-than-expected cost. It's all about knowing your options – and using them effectively.

Understanding Your IRS Payment Options

First and foremost, let's bust some myths. There is no such thing as complete tax debt forgiveness. The IRS will find a way to collect money from you, even if you currently have none. Depending on the size of your debt, the IRS will be more or less aggressive about pursuing your account, and there are a few factors that might affect just how much they invest in coercing payment from you.

Tax debt can expire, but that expiration date is on hold if the IRS has no way of collecting from you. And if you do have enough funds to spare or assets left, the IRS may pull directly from your bank accounts and personal belongings to fulfill your debt. To begin with, the only way to get the IRS off your back without paying them is to prove that the debt isn't yours. Otherwise, you will want to look into the next best thing: paying them quickly and with minimum penalties. This is where IRS payment plans come into play. The IRS offers three significant categories of payment:

  1. Pay everything now.
  2. Pay within a short period (180 days).
  3. Pay via monthly installments (more than 180 days).

Short-Term vs. Long-Term Payments

Short-term payments can be made via check, bank transfer, or online. The sooner you make a payment, the better – while the IRS gives you ample warning of any penalties or developments in your account via notices and letters, there's no surefire way to stop the IRS from continuing to penalize you without resolving your debt entirely.  Long-term payments are more complicated, depending on what you owe.

If you owe $50,000 or less, you can enter a streamlined installment agreement if you agree to automatic withdrawals from your chosen debit account. At $25,000 or less, your requirements for a streamlined installment agreement lessen, and you can make payments yourself and even avoid a federal tax lien. The lower your debt, the easier the process becomes. Streamlined installment agreements are accessible online and don't require a significant setup fee.

If you owe more than $50,000, the IRS will only accept a payment plan with a filled-out Collection Information Statement, alongside a hard copy Request of Installment Agreement, sent via mail or through your nearest IRS field office. This is a non-streamlined installment agreement. All installment agreements boil down to the same thing, by default – a 72-month agreement that splits your debt into 72 equal payments, due every month. 

You can reduce the agreement's length by agreeing to larger monthly payments at a higher risk of default. If you owe a significant sum, the IRS requires financial information through a CIS to accurately determine your installment agreement eligibility. Depending on your debt circumstances and the amount you owe, an installment agreement can be a path toward a rescinded tax lien even if you still need to finish paying off your debt. This can tremendously aid your financial stability and your credit options.

First-Time Penalty Abatement

Your principal debt is often the most significant chunk of what you owe the IRS, but that can change over time. Different penalties can add up, and when calculated with interest, you may end up owing far more than when the IRS first assessed your debt. Thankfully, if your track record has been otherwise impeccable for at least the past three years, you may be eligible for first-time penalty abatement.

This means you can shave off your penalties and accrued interest and focus only on the principal debt. Only some people are eligible for first-time penalty abatement. You need to prove past compliance (meaning you have a clean record for at least three years) and current compliance (which means you're up to date on all current outstanding tax payments, as well as all of your returns, and are in a payment plan for your outstanding debt). 

Furthermore, first-time penalty abatement is not valid for all penalties – it only works on failure to file, failure to pay, and failure to deposit penalties. If these factors apply, you should seek first-time penalty relief via Form 843, Claim for Refund, and Request for Abatement. Or call the IRS through one of your notices or letters, and ask them about abatement directly.

Seeking Other Forms of Tax Debt Relief

Depending on your circumstances, you may have other ways to deal with your current tax situation. Taxpayers in dire financial straits may utilize an offer in compromise to drastically reduce what they owe – although it's not a consistent option, and the IRS often rejects these offers. If your tax debt is close to a decade old, you may be able to negotiate a partial payment plan if it is all you can afford.

If you have no other tax debt relief options to explore, the IRS can postpone any and all collection actions and mark you as currently not collectible, although your debt won't expire in that time, either. And if it turns out that your tax debt is your ex's fault, you may even seek partial or total relief through an innocent spouse relief program. Don't spend another year in debt. Take care of your tax debt this month, and work with us to find the best possible action plan for your case.

A Realist's Guide to Tax Debt Forgiveness

Let's start by getting right to the meat of it – the IRS never fully forgives a tax debt. Tax debt forgiveness does exist in cases of medical debt, consumer debt, and particular student loans – and although it was much easier before bankruptcy laws were massively altered in 2005, most debts could be significantly shortened, consolidated, and even wiped out by going bankrupt.

However, the IRS neither forgives nor forgets quickly, and it possesses the ability to pursue you for your debt even after you've lost everything and have nothing left to give – unless you take the appropriate steps to negotiate with them. Not all hope is lost if you owe the IRS money that you cannot afford to part with.

There are ways to reduce and even minimize your current tax liability. Depending on the circumstances, you can even get the IRS to agree to leave you alone for multiple years while you focus on rebuilding your finances and getting back on your feet. Your tax debt forgiveness options will greatly depend on your tax debt, what you owe, and what you own.

Tax Debt Forgiveness Through Error

While the IRS does not forgive legitimate tax debt, it's still an organization made up of humans who make mistakes. Suppose the IRS made a mistake in your case, and you have the means to prove that you do not owe a tax debt. In that case, your first response to any notice of debt or unpaid tax should be to contact a legal representative and get started on appealing against the IRS' decision to mark you for the outstanding tax liability.

If the IRS did make a mistake, they would rescind their judgment, and you won't owe anything. It always helps to double-check that the basis of the IRS' determination is correct – no matter how slight the chance might be, your "easiest" way out of debt with the IRS is to prove them wrong.

However, should you try to prove them wrong without evidence or intentionally mislead the IRS, you may end up in a much more difficult situation than you started, including potential fraud charges. That is why seeking a legal professional's advice is crucial to ensure you have everything you need to get your debt rescinded.

Innocent Spouse Relief

One other option in limited situations is to provide ample proof that the IRS' basis for your joint tax debt, in the case of a married couple filing jointly, only applies to one person in the marriage and that you knew nothing and were not involved. Innocent spouse relief is not a matter of course. There are multiple requirements to meet, and the IRS may launch a rigorous investigation to ensure that you meet them. They include:

Even if you do not qualify for complete debt relief, you may qualify for partial relief if it can only be established that you did not know of some of the errors on the return.

Making an Offer in Compromise

If you cannot prove the IRS wrong, and if you cannot blame your spouse or ex-spouse, your options are severely limited. In general, the debt you owe cannot disappear. But it can be reduced. The IRS has no use for a debt they cannot collect on. And like other debts, federal tax debt has an expiration date.

As established by the collection statute of limitations, or the collection statute expiration date (CSED), the IRS can only pursue a tax debt for ten years from the date of its assessment (noted on the first notice you receive regarding your underpayment of taxes), plus any applicable tolling periods.

Tolling periods are any timeframe wherein the IRS cannot reasonably collect money from you. For example, if you are in the middle of a bankruptcy proceeding, the IRS will tally the time you've spent going through bankruptcy plus about six months after the end of the proceedings and add that time to your total tax debt expiration. Other reasons to extend the expiration date include the following:

Nevertheless, there is an expiration date on that debt. And the IRS has an obligation to be fair towards taxpayers, as per the taxpayer's bill of rights. To that end, you can convince the IRS that, even with a long-term monthly payment plan, your current financial situation cannot reasonably allow you to pay off the debt you've accumulated (given penalties and interest) before the tax debt expires, or 72 months, whichever is sooner.

This leads us to an offer in compromise. An offer in compromise can be made through Form 433-A (OIC) and Form 656, providing the IRS a thorough overview of your financial situation, as well as a suggested monthly payment plan that you must come up with.

The IRS will consider this plan and determine whether it matches their own calculated reasonable collection potential (RCP), as per the data you've provided. If it does not, your offer is rejected, and you must try again. The IRS will continue to apply any liens and applicable penalties or interest during this period. Working with a professional when trying to utilize an offer in compromise is highly recommended to improve your chances of getting accepted.

Becoming Currently Non-Collectible

When all other options are out of reach, you have one more tax debt forgiveness option to keep the IRS off your back, for now: becoming currently non-collectible. This will not stop the IRS from issuing a lien. Still, it does halt levies, and – as long as your finances continue to qualify for the status – it lets you focus on saving money and improving your material situation without immediately worrying about your tax debt, like a debt deferral.

Do Not Delay Your Tax Debt

One of the IRS' strengths in pursuing tax debts is that they have a lot of tools at their disposal and the government's backing. The IRS can also be relentless, and tax debt is not easily washed away. Your best option is to deal with the debt immediately before the IRS can pile on penalties and incur hefty interest rates. Time is of the essence. Get in touch with us to start working on your tax debt case.

What Is Tax Delinquency and How Can It Affect You?

Do you owe the IRS money? One way of finding out is by going through any old mail they might have sent you. If you missed it the first time, a second look would help you find any notices and letters sent by the IRS explaining that you owe them money. If you haven’t received anything from the IRS besides a text message or a strange email, you probably don’t owe taxes and may be getting phished.

But on the off chance that your notice was lost or the IRS doesn’t have your current address because you’ve just moved and are in the process of updating all of your relevant documents, then the IRS will have sent mail to your last known address, meaning you may not have received the notice that was meant for you. In this case, if you suspect you've reached the point of tax delinquency, you should call an IRS hotline and visit the IRS’ official .gov website, securely log into your taxpayer account, and assess your tax balance there. The website explains how to navigate tax delinquency relating to your unique situation.

Understanding Tax Delinquency

US taxpayers owe the IRS billions in back taxes every year. The IRS does its best to collect on that debt with mediocre results. The tax gap will be never fully close. But don’t underestimate the agency’s ability to make your life substantially more complicated if you refuse to cooperate, from penalties, liens, and levies, to criminal charges for willful evasion. If you do owe the IRS, you must figure out how much and how soon you can start paying off your debt. Tax delinquency usually happens for one of four significant reasons:

  1. You generated a tax debt by making a mistake on your return.
  2. You failed to make estimated monthly payments (for quite some time).
  3. You haven’t reported a significant source of income (that the IRS discovered).
  4. You are seriously behind on your filing deadline for your income tax return.

In any of these cases, the IRS will tally your debt on your next tax assessment date and send you a notice of deficiency. This notice explains that you owe them money, including how much. The assessment date is essential as well. Once a tax debt is assessed, it expires in precisely ten years. This is the statute of limitations on tax debt collection. However, there are tolling periods to expend this timeframe, and the IRS can go after you for trying to dodge your responsibilities as a taxpayer. It’s one thing to be in a tight spot because you forgot to pay or file a return or made a few mistakes – it’s another to recognize that you owe money and refuse payment.

Missed Filing Deadlines?

Keeping your tax returns updated is just as important as paying your taxes. The IRS has separate penalties for missing your filing deadline. The IRS needs that information to keep track of your tax liability and estimate your due tax for the following year. Inaccurate information can result in a generalized tax liability that the IRS builds from data collected by similar taxpayers and your oldest valid return, creating substitute returns. These do not account for any of the deductions or efficiencies you might have calculated in your old returns, which can significantly inflate your tax liability.

Even if the IRS does file these substitute returns for you, it will still tally your delay on the proper tax return – for every month past the filing deadline, which is usually in April of every year (Tax Day), you will owe 5 percent of your tax liability as a penalty, plus accrued interest when paying. The interest rate is variable and adjusted every quarter, as per the IRS News Room. The 5 percent penalty for late return caps at 25 percent after five months.

Missed Payment Deadlines?

If you owe the IRS money, it will start penalizing you for every month you continue to owe, at a rate of 0.5 percent per month, for a maximum of 25 percent after fifty months. This stacks with the 5 percent penalty on tax returns with a minor deduction – meaning, if you both owe the IRS money for fifty months and fail to file your return in less than five months, your penalty will cap out at a total of 47.5 percent of your tax liability. This is still a massive chunk!

Again, interest shouldn’t be forgotten. Failing to pay off your debt means it grows at a significant rate. However, your first priority should always be filing your late tax returns. Even if you still owe the IRS money and cannot afford to pay, filing a corrected return is essentially free – you need to print out a few forms and mail them – and it is a prerequisite for any payment plan. In other words, the IRS won’t let you pay back your debt if your tax returns are not up-to-date. Don’t forget this!

Paying Off Your Debt – Don’t Get Scammed!

Once you’re ready to deal with your tax delinquency, it’s time to talk to the IRS. First things first – if you have been approached by anyone pretending to be the IRS asking for money directly, whether over the phone or online, be wary. The IRS will only accept digital money through the Electronic Federal Tax Payment System (EFTPS).

Even debt collection agencies hired by the IRS – which are few and far between – are only allowed to redirect tardy taxpayers towards the EFTPS and can never directly demand money on behalf of the government. Don’t get scammed! Call the IRS directly via a hotline to figure out your next steps for a payment plan, or log into your taxpayer account on the secured .gov website and get started on a payment plan there.

Understanding Liens and Levies

If you fail to pay for long enough, the IRS will publicly notice a federal tax lien. This is a legal claim on all your accounts and property until your debt is paid off or other conditions are met to justify the lien’s release. Liens effectively bar you from seeking financing by prioritizing the IRS as a top creditor and keeping you from liquifying any assets without first paying off your debt. If the lien is ignored long enough, or you still owe money and aren’t in a payment plan, the IRS can resort to levies.

Levies are physical claims of assets or property or a portion of every paycheck (withheld through a levy agreement by your employer). At this point, the IRS can continue to levy your belongings until you are close to financial distress, at which point they must stop. The IRS cannot continue to draw blood from a stone and cannot force taxpayers in financial trouble to satisfy a tax debt with money they do not have. If your situation is dire, the IRS may flag you as non-collectible until it improves.

If you cannot afford a conventional payment plan but are still capable of generating income, you might want to consider an offer in compromise. Do not approach this idea lightly – the IRS only considers offers in compromise in cases where taxpayers cannot fully pay off their debt with their current earnings, even in 72 monthly installments. Always consult a tax professional before engaging with the IRS, especially if you intend to start a payment plan or seek a compromise.