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What Should You Do If You Owe the IRS Money

5 Things You Can Do To Negotiate with the IRS


Have you been walking around with a feeling of dread because you owe the IRS money? You may be tempted to go into hiding until the IRS forgets about you. Unfortunately, that isn’t going to work – ignoring your tax debt leads to serious consequences like liens, levies, asset seizures, and wage garnishments.

Here is some good news: The IRS wants to work with you to help you pay off your outstanding debt. Let's talk about what to do if you owe the IRS money – and how to get back on sound footing with them.

Table of Contents:

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Get Those Returns Filed

Skipping a tax year won’t prevent the IRS from knowing that you owe money or from conducting an IRS Tax Audit. The IRS reviews pay records and other resources to keep track of what everyone owes. That means that failing to file your return only harms you without offering any extra benefit.

You're not in too deep if you have returns that have not been filed. The IRS wants you to file those returns – it will even work with you to see how you can pay what you owe once you get those outstanding returns filed. The importance of getting current with your returns cannot be overstated – your hands are essentially tied until you do so.

Explain Why You Haven’t Paid Taxes

The reason why you haven’t paid your taxes can impact your options. For instance, you may be eligible for penalty relief due to reasonable cause if you failed to make a payment because there was a fire at your business. 

The IRS has many built-in features that protect taxpayers from harsh penalties if they can prove that a reasonable effort was made to make a payment on time. There are also many options for relief, even if you knowingly and purposely didn't pay your taxes.  

Pay Your Late Taxes

You may find that you don’t owe as much as you thought once you finally file tax returns from previous years. The good part about that is that you may be in a position to pay the IRS in full. Your ability and willingness to pay in full will probably convince the IRS to cancel any of the liens, levies, penalties and IRS Tax Audits you had coming your way. You just need to make sure you're setting up a direct pay option with the IRS. 

It's also helpful to run everything by a tax professional to make sure you've fulfilled your obligation to the IRS. Any crossed wires or oversights could result in a lien going forward that could damage your credit and personal finances for years to come.

Explore Your Payment Options

What if you don't have the money available to pay what you owe to the IRS? The IRS is often willing to offer reasonable repayment options for people who owe late taxes. Correcting the situation is going to take some work and strategizing on your part.

Entering into a payment plan with the IRS doesn't mean you're going to get everything you want. However, it does mean that you're probably going to be able to repay what you owe in manageable chunks while avoiding some penalties that could potentially sink you. Let's take a glance at some of the options that the IRS is often willing to offer to delinquent taxpayers.

Don't forget: You are automatically ineligible for any of these options until you file any late tax returns.

  • Installment Agreements (IA)

Installment Agreements are frequently offered to taxpayers who meet specific criteria. For instance, you must be able to prove that you lack the cash or assets needed to pay off your tax debt. Those who are approved have about six years to pay off a tax debt. The IRS is pretty generous about approving first-time tax offenders for installment agreements as long as they are current with filed returns. 

  • Offer In Compromise (OIC)

An Offer In Compromise allows you to pay back your debt for less than its full value if you can prove that you can't reasonably give the IRS what you owe. The IRS would rather get something than nothing and an OIC lets you use that to your advantage. What's more, the IRS isn't necessarily interested in chasing you down for small payments here and there when it can lock you into a payment agreement that you will honor. 

One nice thing about an OIC is that the IRS will also negotiate settlements for penalties and interest that go beyond just the tax sum you owe. An Offer in Compromise can let you breathe a sigh of relief over your tax situation if you're willing to go through all of the steps of the application process.

  • Currently Non-Collectible

What happens if you're not in the position to pay back the IRS anything on a monthly basis? Your economic situation could qualify you for Currently Non Collectible status. This status kicks in when the IRS or state recognizes that your gross monthly income is lower than the allowable expenses based on national standards. 

Being cleared for Currently Non Collectible status means that the IRS will delay collection efforts. It also means that your account is going to be protected from damaging collection activities like levies and seizures. The Currently Non Collectible program could potentially take away all of the consequences that you're dreading if your income places you in a qualifying bracket.  

Know Your Other Options

You may be excited to realize that one of the options listed above applies to your situation – or you may be wondering if your situation is too different to be helped. Some people who owe money to the IRS fail to pay up because they don't agree with the IRS’s assessment. You may need to explore your options for an IRS Collection Appeal if you feel that you're being charged taxes or penalties that should not apply in your situation.

Stay on the Right Side of the IRS

Nobody is suggesting that paying back the IRS is a piece of cake if you've allowed taxes to go unpaid or unfiled. However, there's a good chance that you'll find more options on the table than you realized existed. 

Written by: The experts at Taxgroupcenter


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***Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.



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