IRS Law Blog

You just got your tax return back from your accountant.

Or maybe you completed the return on your own with tax software.

Either way, the result was terrifying.

You owe money to the IRS that you cannot pay.

And your mind begins to run with worst case scenarios.

• How will I ever pay them back?
• Are they going to take my house and car?  Bank accounts?  Wages?
• Can I actually stop the IRS and find a reasonable solution?
• Will I ever be able to get out from under this?

The good news is there are ways to settle your taxes, prevent loss of property, and not have the IRS wreck your life.

First Time Penalty Abatement

If this is the first year you owe the IRS, you could automatically qualify to have the IRS clear all penalties off your account.

The IRS calls this First Time Penalty Abatement.  You would qualify if you had no penalties charged to you in the three prior years.

This can add up to real savings.  The IRS charges 25% of the tax you owe for not paying your taxes.  If you did not file on time, the IRS will charge you up to another 25%.  If you owe the IRS $50,000, that can be a total of $25,000 combined for late payment and late filing, all forgiven if you have a clean history for the last three years.

There are laws that the IRS must follow in collecting taxes from you.

And those laws are designed to protect you, and your property.  For example, you are automatically entitled to due process of law.  That means the IRS cannot just show up at your door, take your property, and clean out your bank accounts.

The IRS has to notify you first, along with full rights to dispute and stop any action before it occurs.

No surprises.  The letter the IRS must send is called a Final Notice of Intent of Intent to Levy.  After the IRS sends the intent to levy, we have 30 days to appeal.  The appeal stops the IRS cold, and moves your file to an IRS Settlement Officer for a hearing on settlement.  IRS Settlement Officers are independent of the collection division, and are trained to be unbiased and impartial.

This entire IRS process – sending a Final Notice of Intent to Levy, appealing, and resolving – can take a minimum of 12 months to resolve.  So you should not have any immediate worries.

The IRS is not going to take your property because the tax laws give us rights to stop them while we work it out.

You have options for repayment.

The IRS also offers several programs for repayment of your taxes, including the following:

• Installment agreement if you owe the IRS under $50,000.  You will qualify for an automatic IRS payment plan over 72 months with no financial disclosures. You will not need to tell the IRS about where you work, how much you make, and the value of your house, car, and assets.  There will be no levies or liens filed against your property.  And if this is your first time with an IRS problem, you may be able to have all penalties cleared.

• Installment agreement if you owe the IRS under $100,000.  If you owe more than $50,000 but less than $100,000, the IRS will automatically give you an 84 month installment agreement paying them back in full.  No financial disclosures are required; you do not have to open your books to the IRS.  You can still have penalties abated if this is your first time and the IRS will not file any levies against you, but IRS guidelines do require the filing of a tax lien.

• Installment agreement at any balance owed.  Regardless of the amount you owe, the IRS cannot force you to pay everything back if you cannot afford it.  That means you can owe the IRS $250,000 and can pay them $100/month if that’s all your budget allows. The IRS will review your finances to help them determine the amount you can afford.  By law, the IRS is required to accept partial pay installment agreements.

• Currently not collectible status.  If you cannot make any payment back to the IRS, that’s okay, too.  The IRS accepts hardship claims on taxes.  This is called currently not collectible status, and allows the IRS to put your debt on the shelf without collecting.  The IRS will require a collection information statement to show your finances do not permit payment.  As long as you qualify for currently not collectible status, you will have the IRS on hold and not need to make payments.

• Offer in compromise.  If you can show the IRS that you will never be able to repay them, tax laws authorize the IRS to settle with an offer in compromise.  The amount of your settlement will be based on (1) the amount of money you could pay the IRS in an installment agreement and (2) the equity in your assets.  If this is less than what you owe the IRS, they will accept it and forgive everything else, giving you a fresh start.  Be careful, though. The IRS rejects approximately 60% of all offers, and it can take the IRS at least one year to investigate your offer.

• Bankruptcy.  You can solve your IRS problem with bankruptcy, but there are very specific laws that must be followed for success.  For example, your tax return must have a filing due date three years prior to your bankruptcy.  That means if filed your return when it was due, we must wait at least three years thereafter to enter bankruptcy.  If you just filed your tax return, bankruptcy is a longer-term solution.

• IRS 10 year statute of limitations on collection.  All IRS tax debts come to an end, including yours.  The IRS has 10 years to collect from you.  After the 10 years expires, the IRS will forgive your taxes, bringing your tax debt to an end.  In that regard, an IRS agreement to placing you in currently not collectible status can last until the 10 years expires.  A small partial pay installment agreement can do the same.  Currently not collectible and small installment agreements are also forms of IRS settlement, with the IRS leaving you alone until the debt expires and clears from your records.

Owing money to the IRS can be scary, but the beast can be tamed.

There are restrictions on what the IRS can do.  You have power to protect yourself and your property.  At the same time, there are many options available to resolve the taxes so you can move on with life, from an installment agreement to an offer in compromise.  The IRS can even clear penalties off your record.   Fear not, there are solutions to finding out you owe the IRS.