If you owe money to the IRS, you may feel helpless and unsure of what to do, but you have options. Our tax professionals can help you find a solution that works for you.
You might feel like IRS debt puts you in a hopeless or even shameful situation but let us assure you that it doesn’t. Over 11 million Americans owe back taxes to the IRS, and sometimes, something as simple as missing a single tax return or being late with your payment can trigger a minor debt that builds up into something greater over time. Thankfully, there are ways to resolve a debt to the IRS, even after years of penalties and interest.
If you owe money to the IRS, the first thing to know is that there are very few ways to fully cancel your debt. The IRS will expect payment in some shape or form – but given the right circumstances, you can greatly delay when you must pay, or reduce your debt significantly. Let’s explore each of your options.
What Are My Options If I Owe Money to the IRS?
There are three general forms of recourse available to taxpayers who owe money to the IRS. These are:
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- Short-term or long-term payment plans or installment agreements,
- An offer in compromise to reduce the debt, and;
- In rare cases where you feel an error has been made, you can seek an appeal and argue against your tax liability.
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Depending on how large your debt is, and how long you’ve gone without paying the IRS, you may be subjected to different collection actions, which include liens and levies. There are different ways of dealing with these collection actions, too.
If you owe money to the IRS, the first thing to do is to get up to date on your tax returns. If you haven’t filed in a while, you will need to make sure you’re back up to speed, or you won’t be able to seek certain forms of debt reduction, nor complete a payment plan with the IRS. Keep in mind, if you are self-employed or must otherwise make estimated tax payments, then making sure you continue to make your payments is also important, even if you can’t pay off your debt yet.
Seeking a Reduced Debt
If you cannot afford to pay off your debt within 120 days, nor afford to make monthly payments for six years or until your debt expires, then the IRS may be persuaded to an offer in compromise.
This is an offer the taxpayer must prepare and send alongside an initial payment. The IRS can either accept the offer or reject it. Interest continues to accrue while the IRS deliberates the offer in compromise, so making an offer the IRS is likely to accept is important.
Many factors go into the IRS’s deliberation of an offer in compromise. The most significant factor is your reasonable collection potential (RCP) based on your expendable income over a certain period, and the total value of any non-exempt assets you own at their quick sale value (QSV) or liquidation value. The IRS offers an online pre-qualifier tool to help taxpayers weigh their options but note that it is no guarantee that the IRS will accept your offer.
Penalty Abatement
Under certain circumstances, first-time taxpayers may be able to request penalty abatement from the IRS when seeking to pay their back taxes. This would remove additions from your owed tax such as penalties, fees, interest, and even certain taxes. The circumstances for a penalty abatement are quite strict, and the requirements for filing the right form can be confusing. A tax debt professional can help you navigate your options for abatement.
Tax debt professionals are your best option for formulating an effective and reasonable offer in compromise. They know what to look for in a person’s financial past and circumstances, and how low the IRS will be willing to bring the debt. Offers in compromise are never a guaranteed option but may be the best one available to taxpayers with no hope of consistently making monthly installments to eliminate their debt in a few years’ time.
Arguing Against Your Liability
While rarely an option, some taxpayers receive a tax liability they did not deserve due to an error on the IRS’s part. A tax professional can help these taxpayers bring their evidence to the IRS’s Independent Office of Appeals or the US tax court and argue doubt as to liability.
For example, the IRS might have sent you a revised tax bill after deciding you did not qualify for a certain deduction. You can appeal this decision and provide the necessary evidence to prove that you are qualified for the deduction.
What Happens If You Don’t Pay?
If you owe money to the IRS and ignore your tax debt for long enough, the IRS will begin to pursue specific collection actions against you. The government is within its right to use these actions to leverage taxpayers to pay, and its ability to seek payment outstrips that of any other creditor. The two most significant tools at the IRS’s disposal are liens and levies.
Liens can be leveraged almost immediately after you’ve missed your deadline for paying your back taxes, depending on the size and nature of your tax debt. A tax lien is a legal claim on all your property, effectively allowing the government to call dibs on everything you own until you pay your debt.
This isn’t a physical claim of any assets or accounts but does interfere with your ability to secure a loan using your property as collateral or liquidate assets without first paying your tax debt.
Levies are a physical claim of an asset, property, or a portion of your monthly wages. The IRS can make your employer withhold a portion of your wages every month if you are eligible, empty out a bank account, or claim an asset such as a secondary vehicle or non-primary residence, until your debt is paid. Collection actions such as levies can be avoided or worked around in certain ways, such as declaring yourself currently not collectible.
How Rush Tax Resolution Can Help
Qualified tax professionals can get you out of trouble with the IRS, not just by helping you navigate around the IRS’s rules and collection actions, but by advising you on the best possible path towards debt resolution.
Experienced tax attorneys know how the IRS works, and how the government leverages collection actions against indebted taxpayers. If you owe money to the IRS, Rush Tax Resolution will work with you every step of the way to get back into a good standing with the IRS, and even reduce the amount you owe.
