You’ve gotten a letter from the IRS regarding your taxes. You owe money. Problems with the IRS can lead to further financial consequences, which you’ll want to avoid.
Take your next step in a timely manner, whether you decide to contact the IRS yourself or reach out to a tax professional. Be careful with how you prepare to work with the IRS because there are pitfalls that you’ll want to avoid.
Understand tax debt consequences
If you don’t take care of your tax debt, it will accrue interest and late fees.
Depending on how long you let your tax debt sit, you may have to deal with levies or liens. Liens are how the IRS lays first claim on any money resulting from the sale of your property, like your car or house.
Levies allow the IRS to seize assets and use them to pay your tax debt. Assets include current income, retirement accounts, and bank accounts in addition to valuable property.
Once you’ve received notice, you’ll want to know your options and determine the best way to approach your tax debt before you respond.
Prepare to talk with the IRS
Before you contact the IRS, you need to be prepared and respond to the IRS’s notice thoughtfully. Here are five things you should do before you call the IRS:
- Understand the IRS
- Know your situation
- Know your options
- Meet with a tax professional
- Be phone-ready
Understand the IRS
Understanding how the IRS works and what to expect will help you be prepared when you contact it.
“Taxpayers are often terrified of the IRS, and rightly so. The IRS is one of the most powerful and feared government agencies in the United States with access to information beyond our imagination,” says Alissa K. Hollinger, CPA, CTRS and Hollinger Tax Resolution Owner.
Having realistic expectations of what dealing with the IRS entails will help you decide the best way to move forward with your tax debt.
The IRS’s purpose is to collect taxes. It will collect as much as it can as soon as it can, whether or not that deal is the most favorable to you.
“People tend to forget that the IRS is merely a collections agency. It is their job to collect as much of the balance as quickly as possible. So, they often don’t really ‘work’ with the taxpayer to get them into an agreement to repay debt that actually functions for the taxpayer. Taxpayers often find themselves bullied into agreements that they can’t actually afford and then end up defaulting,” says Danielle Dryden, attorney and tax resolution specialist.
The IRS is not on your side, and it has a lot of power to make your financial situation difficult if you fail to pay your tax debt.
Because the IRS isn’t on your side, it may not bring up alternatives that can help keep you in a stable financial situation.
“The IRS is notorious for placing taxpayers in payment arrangements when they qualify for an uncollectible status or even for an offer in compromise. The taxpayer needs to make sure they don’t agree to any type of arrangement that they cannot keep or that they do not understand. This simply causes the taxpayer to pay taxes they may not have to pay, or default on their agreement, incur additional fees, and possibly trigger aggressive collection activity,” advices Hollinger.
You should also understand that you’ll run into inconsistencies when working with representatives.
“First, know to expect a long phone wait and that every representative can be different, with some being more helpful than others,” says Vincenzo Villamena, Global Expat Advisors managing partner.
The inconsistencies may be even sharper due to training and experience.
“The IRS has had some trouble lately with personnel training. You’ll remember the government shutdown last year. New hires for the upcoming tax year are generally trained in late December and early January. Last year they couldn’t be trained because of the shutdown. This year, the IRS has hired hundreds of new employees all at once,” says Dryden.
However, government shutdowns and hiring practices aren’t the only reason that you can expect inconsistency when speaking with an IRS representative.
“Training isn’t consistent in collections departments across the country either. The result is that you have a taxpayer calling the IRS and talking to a representative that could very well have no idea what they’re doing. This is where a professional would come in handy. We know the rules when the IRS doesn't and can make sure a taxpayer doesn’t pay any more than they have to,” advises Dryden.
You also need to be able to identify scams. The IRS will always send written notice before using other methods of communication.
“The IRS will rarely call taxpayers or visit you in person, except for under special circumstances. If you have already received several letters about a longstanding tax debt, IRS collection employees may contact you via phone or visit your home or business.
They will never call demanding immediate payment or threatening to send law enforcement to arrest you. If you receive a call like that, it is most likely a scam.
They might assign private debt collectors to contact you, but only after giving you written notice.
They might send an IRS representative to visit you, but only after giving you written notice. They will provide two forms of official credentials,” says Josh Zimmelman, Westwood Tax & Consulting LLC President.
If you get any kind of communication about owed taxes that doesn’t come from the IRS, contact the IRS directly before proceeding further. If it is a scam, you can also report it to the IRS.
Know your situation
While it may be more comfortable initially if you keep your head in the sand regarding your tax debt, it will ultimately harm you and make your situation worse. Take steps to become informed about your finances and tax debt.
The notice you received from the IRS is a good place to start because it has valuable information.
“I would recommend that they read the entire notice before calling the IRS. The information on the notice is usually time sensitive and is intended to help a taxpayer preserve their rights. The taxpayer can get very useful information about their notice and their taxpayer rights by visiting www.irs.gov,” advises Hollinger.
Your situation will affect your options for resolving your tax debt. Before you reach out to a tax relief professional or the IRS you need to understand your situation and be prepared for how it will affect next steps.
“It is important to know that compliance will be a key factor in the options available to a taxpayer. In fact, if a taxpayer is out of compliance, there is very little that can be done to prevent or stop aggressive collection action,” says Hollinger.
Compliance refers to filing and paying taxes correctly.
“Non-filers (someone who has unfiled tax returns) may find the process most challenging. Compliance is required to be eligible for any of the programs that the IRS has to help taxpayers who can’t pay their debt. Often, taxpayers have lost their tax records and struggle with this part. This is often when a professional can be extremely helpful and save the taxpayer a lot of time, aggravation, and even money.
Fortunately, the IRS has policies in place to help non-filers get into compliance, even if they have years of unfiled returns,” continues Hollinger.
If your tax debts have moved to collections, your options may be different.
“If the taxpayer’s account is old and inactive, the IRS is moving many of these to a third-party collection agency. The assignment will impact the options available to a taxpayer and they should receive notification via postal mail if this has happened,” says Hollinger.
If you’ve been contacted by a collections agency regarding your tax debt, you should proceed with caution to avoid scams. The IRS only uses four private collection agencies and has verification processes in place.
Understanding your situation will help you evaluate options and be prepared to meet with a tax relief specialist.
Know your options
When it comes to discovering that you owe taxes in April, of course it’s best to pay the full balance then.
“Taxpayers who are going to owe in 2020 need to either pay the amount in full or get on a payment plan by April 15. Never put it off. Doing so only makes the situation worse,” advises Robert Farrington, TheCollegeInvestor.com Founder.
However, that may not be possible in every situation. Whether you can’t pay the full balance in April or you’ve delayed tax payments long enough to have received additional communication from the IRS, you’ve got some options.
Dispute what you owe
In some cases you may want to dispute what you owe, but sometimes it’s not worth it.
“If it is less than a couple of hundred dollars just pay it and move on. Right, wrong, or indifferent. If it is substantial, find a professional that practices in that area of tax law and hire them. It will be money well spent,” advises Charles Read, CPA, US Tax Court Practitioner and GetPayroll President and CEO.
Make an installment agreement
Installment agreements are payment plans agreed upon by the taxpayer and the IRS. While installment agreements allow you to avoid liens and levies, you’ll still pay interest on your tax debt. You may also pay late fees.
Zimmelman explains how to set-up an installment agreement for yourself:
“To request an installment agreement, you can apply online with the Online Payment Agreement Application or in writing with Form 9465.
You will need to provide the following information: your name, address, email address, date of birth, filing status, social security number (or individual tax ID number), and the amount you owe. You’ll also need to be able to confirm your identity via a financial account number, mobile phone number (registered in your name), or an activation code received by mail.
You may need to pay a set-up fee. You can request a waiver or reimbursement of the user fee if your adjusted gross income is under a certain amount.”
Negotiate an offer in compromise
An offer in compromise is a settlement payment. You can make the IRS an offer to settle your tax debt for less than you owe. If the IRS accepts, you’ll pay the settlement and the remainder will be forgiven.
Zimmelman explains how to approach requesting an offer in compromise:
“To request an offer in compromise, you must have filed all your tax returns and made required estimated tax payments for the current year. You must not be involved in an open bankruptcy proceeding.
You can check if you are eligible for an offer in compromise (OIC) by using the Offer in Compromise Pre-Qualifer tool and then file for an OIC with Form 656-B.”
Check eligibility for currently non-collectible status or innocent spouse relief
If you can demonstrate hardship, the IRS can mark your account as currently non-collectible. This status marking prevents the IRS from taking aggressive action to collect, but your debt will accrue interest until you pay it off.
Zimmelman reviews how to request and qualify for this status:
“You will be asked to complete a Collection Information Statement (Form 433-F, 433-A, 433-B).
You will need to provide proof of your financial status including assets, income, and expenses.”
If you're experiencing IRS problems because of how your current or former spouse filed taxes, you may be able to have penalties removed and no longer be held responsible for the debt. The IRS has specific eligibility requirements that must be met for relief to be granted. Working with a tax relief professional can help you navigate those requirements and advocate for you to the IRS.
Meet with a tax relief professional
Meeting with a tax professional or taking advantage of a free consultation from a tax relief company is a good idea because they have knowledge and experience to help you plan your approach to the IRS.
(It’s also the advice overwhelmingly given by the experts who responded.)
“I would recommend paying a CPA or lawyer to help you decide the best course of action, and also protect your credit score as much as possible which will save you money in the long run. If you try to go it alone I recommend spending a lot of time on irs.gov learning the process and options,” advises George Birrell, CPA, GetTaxHub Founder.
As you determine who to meet with, you should consider professionals with the right experience and expertise.
“A tax resolution specialist will know the rules, when a tax preparer may not. Unbeknownst to many, a traditional tax preparer is seldom familiar and experienced with the resolution rules and options. The rules are completely different; similar to the difference between a heart doctor (the tax resolution specialist) and a general practitioner (the standard tax preparer),” says Hollinger.
Meeting with a tax relief professional is advantageous for you because they know how the resolution process works and have experience with the IRS.
Don’t worry about spending too much time meeting with tax relief professionals. Once you’ve chosen a reputable professional or tax relief company, the consultation shouldn’t take too long and the benefits of taking the time are high.
“I do not recommend an uninformed taxpayer contact IRS without talking with a local CPA or Enrolled Agent for an hour so that the taxpayer has a plan on how to proceed. It should not take longer than one hour to determine the best plan for the taxpayer. Plus, the taxpayer will be much less intimidated by IRS,” says Robert Allman, Professional Public Accountants, LLC President.
Depending on how your initial consultation goes and the complexity of your tax situation, it may be in your best interest to hire a tax relief company or tax resolution professional to take your case.
“The Internal Revenue Code (as revised) runs over 5,000 pages of fine print. The regulations, manuals, and case law fills a substantial library and increases daily. As a CPA and USTCP there are tax cases I will not take because with only forty years of experience I am incompetent in many areas of the law that I don’t practice in on a regular basis. I refer those cases to an expert in that portion of the law.
You cannot ignore the IRS, don’t make that mistake. But just like a defendant representing themselves in court has a fool for a lawyer, a taxpayer who tries to deal with the IRS is a fool. I see them afterwards and many times they have done something wrong that is irrevocable and is to their disadvantage,” says Read.
On your own, you may not have time to go through and understand all the ins and outs of tax law or how the IRS works. You may also not be aware of the most recent updates on tax regulations.
“Third, a tax resolution professional knows the alternatives available to you – they constantly take education in changing tax regulations and will be able to inform you of options you didn’t know existed,” says Dane Janas, Enrolled Agent and Boundless Tax Owner and CEO.
The IRS may also take you less seriously if you’re on your own.
“Some say professional representation causes the IRS to take the taxpayer more ‘seriously.’ Although there is no hard documentation to support this, I have had numerous clients that are basically disregarded by the IRS on their own, and I achieve resolution for them quite swiftly when representing them,” says Janas.
In addition to benefiting from professional expertise and knowledge, you’ll likely save yourself time on the phone waiting to speak to a representative.
“Your tax professional has shortcuts into the IRS phone system. Where the taxpayer is forced to call the number published on their notice and wait on hold up to an hour (or get the dreaded courtesy disconnect) — licensed tax professionals (CPAs, EAs, and tax attorneys) can call the IRS’s Practitioner Priority Line, likely cutting their wait time in half and getting a desired result much more swiftly. There is even a company called enQ that has built a service just for tax professionals that waits on hold at the IRS using robots, cutting IRS hold times on certain lines to just three minutes. (Unfortunately, individual taxpayers cannot subscribe to this service.)” says Janas.
If you do decide to handle your tax relief yourself, make sure you’re ready. Have your research done and understand your options.
“Be as prepared as possible before you speak with the IRS. Pull together your tax information and financial records so that you are able to reference any questions or disputes. The more prepared you are upfront the easier it will be to keep to the conversation moving in a positive direction to help you reduce your debt,” suggests Jared Weitz, United Capital Source CEO and Founder.
Once you get on the phone, be ready to verify your identity, ask questions, speak to your situation as appropriate, and take notes.
Verifying your identity
Alissa K. Hollinger, CPA, CTRS and Hollinger Tax Resolution Owner
“Taxpayers need to be prepared to verify their identity and provide updated contact information. This will include providing their social security number, date of birth, current mailing address, and contact phone number.”
Dane Janas, Enrolled Agent and Boundless Tax Owner and CEO
“When you reach an IRS phone operator, speak clearly and concisely. If you’ve received a notice, inform them what notice you’ve received (there is a number in the top right corner), and tell them you’d like to discuss the notice. They will usually put you back on hold for about five minutes while they look over your account, and will return ready to discuss with all the information at hand.”
“When speaking with the IRS about your tax debt, inquire as to what alternatives are available at this time if you cannot pay the full balance at this time. The IRS phone operator will walk you through the options available to you, and may be able to process one of the options over the phone if you both agree upon it, such as an installment agreement. But again, this is an area where you it would be incredibly advantageous to have a tax resolution professional on your side, as the IRS will not necessarily inform you about options that are generally disadvantageous to them, such as Offers in Compromise or filing as Currently-not-Collectible.”
Speaking to your situation
“The IRS will use every phone call as an opportunity to gather information on the taxpayer. The more information they can gather for collection, the better. This is where any information the taxpayer provides, can and will be used against them.
The IRS employee may ask about the size of their household, the name, address, and contact information of their employer. The taxpayer should also be prepared to provide their household budget which will include their income and expenses. When they contact the IRS, the taxpayer needs to be cooperative and truthful. If they don’t know the answer to a question, 'I don’t know' is an acceptable response.”
Robert Allman, Professional Public Accountants, LLC President
“If the taxpayer elects to contact IRS by phone, the taxpayer must have a pen and paper available and be ready to write down the agent’s name and ID number. The taxpayer may have to ask the agent to repeat the name and ID number because often the agent is talking too fast, or the taxpayer cannot understand what the agent is saying.
Contact the IRS
If you do decide to deal with the IRS on your own, you can easily find contact information on the IRS’s website. To get in-touch with your regional office, a Google search is helpful.
If you have received a notice from the IRS, the best way is to use the phone number on your notice.
“When contacting the IRS, make sure you are contacting the correct department. If you have a notice, use the telephone number published on the notice. If not, the IRS has hundreds of telephone lines and reaching the incorrect one will just get you transferred and put on hold over again and over again,” advises Janas.
The other important aspect of contacting the IRS is to be prompt.
“Whether it's in-person or over the phone, it's crucial to contact the IRS punctually. Quick outreach not only relieves stress but also demonstrates a show of good faith to the IRS. Often, the IRS can work with an individual to take care of debt without any penalties or added interest," recommends Eileen Maki, FitSmallBusiness.com Tax and Accounting Analyst.
Taking steps to resolve your tax debt will help you maintain financial stability. Understanding how the IRS works, your situation, and your options will help you find a good solution to your issue. Working with a tax relief company staffed by tax resolution experts or working with a tax resolution professional can help you achieve optimal outcomes and avoid pitfalls from failing to understand the tax code and IRS properly.
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Looking for more resources? View "The Definitive Guide to IRS Debt Forgiveness".