Ten Things to Remember When You Owe the IRS
The IRS Restructuring and Reform Bill of 1998 was a landmark law that put respect for the individual taxpayer back into the system. It forces the IRS to more fully communicate with the public and grant taxpayers "due process" rights.
When the IRS comes around to collect, sooner or later you're going to have to face the music. If you play games with the tax collector, the system is designed to make your life miserable. So here are ten things to remember when you owe the IRS:
1. Don't ignore any IRS notices.
More people get into more trouble than they've ever bargained for because they ignore those computer-generated IRS notices. Some IRS notices are sent by certified mail. If you think you can ignore these notices by not going to the post office to pick them up, you're mistaken. Respond to the IRS every time.
2. The IRS must explain your rights during an IRS interview.
The IRS publication entitled "The IRS Collection Process," revised in 2015, tells you that you have a right to be represented and that you have a right to be treated in a professional and courteous manner. If you do not like the way you are being treated, you can stop the interview and ask to speak with a supervisor.
3. Before you go to the IRS, spend an hour with a tax expert.
This may be the best hour you've spent in a long time. The tax expert will tell you how to prepare for your collection interview, how to conduct yourself and make you aware of when the IRS revenue officer is attempting to take advantage of you. You must always remember that the IRS revenue officer's job is to collect money for the government.
4. Never meet the IRS alone.
IRS collection interviews are no picnic and you should have representation. Chances are you will wind up with much better results with representation accompanying you.
5. The IRS is not infallible.
The IRS was recently "audited" by the General Accounting Office and it seems the IRS's own house needs some cleaning. Often, the IRS cannot keep track of how much you owe, especially if you have been making regular payments. The IRS makes mistakes, don't take their word for everything.
6. You have due process.
The IRS can no longer simply take your bank account, your automobile, your business or garnish your wages without giving you written notice and an opportunity to challenge what the IRS claims. When you challenge the IRS, all collection activity must come to a screeching halt.
You can even take the IRS to court and they cannot collect from you until the judge issues a decision. You can literally tie the IRS' hands for years. The IRS is not going to tell you what to do or how to protect yourself.
7. You may be an innocent spouse.
Are you widowed, divorced or separated? Do you have tax problems that arose out of the actions of your former spouse? If you answered yes to any of these questions, you may be entitled to innocent spouse relief. This relief could result in the entire tax bill being written off against you. Yes, individual states also grant innocent spouse relief.
8. You don't go to jail if you can't pay.
In this country, no one goes to jail for owing taxes. You can go to jail for cheating on your taxes and you can go to jail for trying to trick the tax collector, but you can't go to jail simply because you owe the IRS and can't pay.
9. You have options when you owe the IRS.
People who owe taxes, whether to the IRS or their home state, generally have several options available to them. First, if you owe and can pay in full, you should pay the taxes despite the pain. However, if you cannot pay in full, four avenues may be open to you:
- Hardship suspension. Here the IRS leaves you alone temporarily. Your account will be reviewed periodically for your ability to pay. Even though the IRS will not bother you, interest continues to accrue on your account and is compounded daily.
- Installment payment arrangement. Here the IRS allows you to make monthly installment payments. Ideally, the IRS wants the bill paid in full within three years. You complete a financial statement and essentially pursue a conventional bank loan. Interest continues to accrue and is compounded daily on the remaining balance.
- Bankruptcy. It's not for everyone. However, some taxes, usually income taxes, state and federal, may be dischargeable in a Chapter 7 bankruptcy proceeding. Other bankruptcy chapters allow you to pay your tax bill in monthly installments with either little or no interest at all. Bankruptcy rules are complicated. See a qualified bankruptcy attorney who understands both bankruptcy law and tax law.
- Offer in compromise. This is the IRS version of "let's make a deal". Under certain circumstances, the IRS will accept the payment of a smaller sum as payment in full for a larger tax debt. Individual states have similar procedures. If your offer in compromise is accepted, tax liens are removed and you are given a fresh start. You should consult with an attorney who specializes in these offers.
10. Respect the power of the tax collector.
IRS tax collectors have more power than just about anyone in the federal government. They operate under very few rules. They can make your life pleasant or miserable. Most success in dealing with tax collectors comes from your communicating with them in a prompt manner. Here is a sampling of what they can do if you don't pay your taxes:
- File a tax lien against you;
- Levy your bank account;
- Garnish your wages;
- Close down your business;
- Seize and sell your home;
- Damage employment and business relationships;
- Assess you personally for corporate employment taxes;
- Put you in a monthly installment payment arrangement that is too high;
- Contact your banker, neighbors, friends and business relationships concerning your tax liabilities;
- Go after third party transferees of your assets.
Get Started on Your Taxes with a Free Legal Evaluation
If you owe taxes to the IRS and don't know how to pay it, you likely will want professional help. Tax attorneys can help you work out a plan that fits within your budget and needs, while ensuring proper procedures are followed. Get started today by having a local tax attorney evaluate your situation for free.