Settling back taxes with the IRS

01
November

It can happen to anyone. Whether you were on a lean period and just didn’t have the money to pay your taxes or you just overspent, like the Federal Government tends to do, eventually anyone could fall behind. And with interests and penalties, your back taxes can go from a monkey on your back to an 800-pound gorilla! Don’t worry though – there are steps you can take to prevent the IRS from seizing everything you have and doing to you what they did to Willie Nelson.

The first thing you have to remember is that in order to even deal with the IRS, you have to communicate with them. Trying to avoid the IRS is like when you were a kid, running from your parents after breaking a lamp. It simply can’t be done forever.

If you can afford to pay the back taxes, but not all in one massive payment, you may want to talk to the IRS about an Installment Agreement. Usually the IRS will not work with anyone, however, until they file all their taxes for every year, so if you have a tax liability that’s five years old and you haven’t filed with them since then, you have to catch up every year until you’re current. Then the IRS will generally work out a payment schedule based on how much you make and what you can afford to pay monthly.

If things are really bad, you may want to ask about being put in the IRS’s “Currently Not Collectible” list. Keep in mind that in order to be put on this list, you have to be able to conclusively prove that your expenses are greater than your income. Also, ithe IRS absolutely requires that you be caught up to date with filing tax returns before they’ll even talk to you. Contrary to what you read in editorial cartoons, the IRS is smart enough to know that they can’t collect blood from a turnip.

Another proposal is called an “Offer In Compromise”. An Offer In Compromise is showing the IRS that you’re in a serious financial bind. Basically, what it tells the IRS is that even if they seize all your assets, there won’t be enough there to pay off your tax obligations. an Offer In Compromise requires extensive financial disclosure on your part, so be sure to consult with a tax accountant before you consider an Offer In Compromise. Like with any dealings with the IRS, you need to have all your tax returns filed for every year before they will even consider this.

You can, theoretically, wait out the IRS. The law is that the IRS has 10 years from the date of assessment to collect back taxes. However, there are multiple things, such as bankruptcies that can extend this time frame. Once again, consulting with tax accountants and attorneys is your best bet in seeing if your taxes are truly expired or whether the IRS still has time to collect on it. Consulting with these professionals is your best bet in being able to know for sure that the time has expired.

If worse comes to worse and you truly are so bad off that you’ll never get out of debt no matter how much you try, the last resort is a bankruptcy. The first thing you have to realize is that you have to qualify for a bankruptcy. Then you need to consult with a tax attorney to see what taxes can be discharged. Recently accrued back taxes may not be discharged in a bankruptcy and anything business related, such as payroll taxes definitely will not be discharged. Before even contemplating a bankruptcy, talk to a bankruptcy attorney and see what can and cannot be forgiven when a bankruptcy occurs.

In conclusion, there are many ways to deal with the IRS if you owe back taxes. People have had problems with the IRS for years and almost all the cases have been settled in one way or another. So don’t worry, the IRS isn’t going to hire Guido to come break your legs, but if you really need further tax help, consulting with professionals in the field is the best way to get yourself on the road to recovery.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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