What To Do if You Get a Tax Bill From the IRS

It’s normal to feel stressed if you receive a tax bill from the Internal Revenue Service (IRS), especially if you cannot pay the full amount. The most important thing is not to ignore the notice. You have several options for managing your tax liability and preventing severe consequences, but pretending it doesn’t exist is a bad idea. The sooner you deal with the issue, the better.

This guide will walk you through the steps involved in responding to an IRS tax bill. This includes verifying its accuracy and exploring payment options such as installment agreements and offers in compromise. If the IRS is pursuing collection action against you, it’s a good idea to reach out to an experienced local tax attorney.

First Thing To Check: Is the Tax Bill Correct?

Before you do anything else, confirm that the tax amount the IRS claims you owe is accurate. The IRS is not infallible. Mistakes can occur due to processing errors or incorrect information received from third parties, such as an employer misrepresenting your income.

If you believe the balance due is incorrect, contact the IRS immediately using the phone number on your bill. You should also prepare a written explanation of the discrepancy.

When communicating with the IRS, be sure to:

• Provide clear documentation: Include a copy of the IRS’s letter along with copies of any supporting documents, such as past income tax returns, receipts, proof of past payments, and a copy of the original IRS letter. Never send originals unless the government specifically requests them.
• Keep detailed records: Document every phone call, including the date, time, the agent’s name, and the substance of the conversation. Save copies of all written correspondence.

If your tax issue is complex or you can’t convince the IRS that it’s incorrect, speak with a local tax attorney who can help resolve the dispute. Having legal representation can benefit you in many ways.

Can You Just Pay the Tax Bill?

If you agree that you owe the back taxes, you’ll have to pay the amount listed. The IRS letter will provide payment information. The IRS offers several convenient payment methods, including online payment through IRS Direct Pay, creating an account on IRS.gov, payment by phone, mailed check or money order, or in-person at a Taxpayer Assistance Center. The IRS encourages electronic payment for faster processing.

To make an online payment, you must create an online account. This applies to individual tax payments as well as IRS Direct Pay. You can mail in a check or use a debit or credit card, though fees may apply for the latter. As long as you pay in full by the due date, you will not have to pay interest or penalties.

The Consequences of Ignoring an IRS Tax Bill

Ignoring an IRS notice is the worst thing you can do when it comes to owing back taxes. The penalties and collection actions escalate over time.

If you fail to respond and make payment arrangements, the IRS has broad powers to collect the debt, including:

• Filing a notice of federal tax lien: A tax lien is a public claim against your current and future property, including real estate and personal property. It can severely damage your credit and make it difficult to sell assets
• Issuing a levy: The IRS can levy your bank accounts and seize your assets, thereby restricting access to your funds and redirecting them to the government
• Garnishing your wages: The IRS can require your employer to send a portion of your paycheck directly to them until you have paid the debt in full
• Seizing future tax refunds: The IRS will automatically apply future tax refunds to your outstanding debt
• Restricting your passport: The IRS can certify your debt to the State Department, which may then deny your passport application or revoke your current passport

Penalties for not paying your taxes may start small, but they can increase to as much as 25% of your unpaid taxes. Interest also accrues on both the unpaid balance and the penalties.

What if You Can’t Pay the Full Tax Due?

For some taxpayers who owe the IRS money, it’s not a matter of whether the amount they owe is correct, but rather not having the money to pay the bill in full. The good news is that the IRS offers several payment options to resolve a past-due tax bill. Any experienced tax professional should be able to explain these options to you. To increase the chances of the IRS accepting your payment agreement, you may want to have a tax lawyer negotiate on your behalf.

The government would much rather settle the debt or receive its money over time than start the collection process. There are several options available for resolving an outstanding tax debt. Let’s look at some of them:

Installment Agreement (Payment Plan)

The most common solution is an installment agreement, which allows you to make monthly payments toward your tax debt. You can apply for a payment plan online at IRS.gov or by submitting Form 9465.

Interest and late-payment penalties will continue to accrue until you pay the balance in full. In addition, the IRS will automatically apply any future tax refunds to your debt while the agreement is active.

Offer in Compromise (OIC)

In certain circumstances, the IRS may accept a settlement for less than the full amount you owe. This is called an “Offer in Compromise” (OIC).

The IRS may accept an OIC for three main reasons:

• Doubt as to liability: You can prove the assessed tax liability is incorrect
• Doubt as to collectability: You can demonstrate that you do not have the income or assets to pay the full amount
• Effective tax administration: Paying the full amount would create an exceptional financial hardship for you

Before applying, you can use the Offer in Compromise Pre-Qualifier Tool on the IRS website to gauge your eligibility. An OIC is a complex legal negotiation, and the help of a tax attorney or taxpayer advocate service can significantly increase your chances of success.

Currently Not Collectible (Hardship Status)

If you cannot afford to pay your taxes after covering basic living expenses, you can apply for “Currently Not Collectible” (CNC) status. If approved, the IRS will temporarily suspend collection actions against you.

Some taxpayers rely on Low-Income Taxpayer Clinics (LITC) to help them apply for CNC status. Others opt to have an experienced tax attorney handle it.

Tax debt does not disappear, with penalties and interest continuing to grow while you’re in CNC status. The IRS will periodically review your financial situation to determine whether you can resume payments. The statute of limitations on collection (usually 10 years) continues to run while you are in CNC status.

Bankruptcy

In some cases, the bankruptcy court will discharge older federal and state income tax debts. The rules for discharging tax debt are extremely complex and depend on several factors, including the age of the tax debt and whether you filed a timely, non-fraudulent return. Speak with an experienced bankruptcy attorney to see if this is a viable option for you.

A Tax Pro Can Help With Your IRS Tax Bill

It’s normal to panic when receiving a bill from the IRS, but remember that you have options. An experienced tax attorney can assess your financial situation, explain your rights, and negotiate with the IRS on your behalf to achieve the best possible outcome.

Whether it’s setting up an installment agreement, navigating an Offer in Compromise, or defending you against aggressive collection actions, a skilled tax lawyer can provide the expert guidance you need.