What to Do If You Owe the IRS

The IRS Restructuring and Reform Act of 1998 was a landmark law that forced the IRS to change how it treated taxpayers. The new legislation requires the Internal Revenue Service (IRS) to treat taxpayers with respect and to grant them due process rights.

While the law demands that IRS agents respect your rights, if you owe unpaid taxes, the IRS will take action to collect what you owe. (They just have to be nicer while doing it.)

Here, we’ll offer a few tips for people who owe money to the IRS. If you’re dealing with back taxes, you may want to consult an experienced tax professional or tax lawyer.

1. Don't Ignore IRS Notices

Many people make their tax problems worse by ignoring IRS notices. They assume that the IRS will go away if they don’t answer their door or sign for certified mail. This couldn’t be further from the truth.

The IRS sends notices via certified mail, so you can't claim you didn’t receive them. All the Internal Revenue Service must show is that the U.S. Postal Service delivered their notice via certified mail to the address shown on your last tax return. It doesn’t have to prove you accepted delivery.

2. The IRS Must Treat You Courteously

An IRS publication called “The IRS Collection Process” states that individual taxpayers have a right to retain a tax professional, attorney, CPA, or other agent. This document also states that the IRS must treat you in a courteous, businesslike manner.

If you don’t like how an IRS representative treats you during a tax audit, you can ask to speak with a supervisor.

3. Before You Go to the IRS, Get Professional Tax Help

Meeting with a local tax lawyer or certified public accountant (CPA) is a worthwhile investment of your time and money. They will review your audit notice and other tax correspondence and explain how to prepare for your interview. 

A tax pro can also help identify items on your returns that the IRS considers “red flags” to avoid an audit or further scrutiny. The IRS is essentially a bill collector for the government, and you need to be clear on your taxpayer rights and obligations during an IRS audit.

A tax expert will help you understand your audit notice and explain what will happen during your tax audit. Many taxpayers don't know that the IRS conducts several different types of audits:

• Correspondence audits: The IRS requests additional information or asks you to explain discrepancies on your tax return.
• Office audits: The IRS sends an agent to your place of business to discuss your return.
• Field audit: An IRS agent meets with you in your home or business to discuss your return and review related documents.

Remember that the IRS sends notices for all sorts of things, not just to notify you of an audit. If you receive a notice of past-due taxes, your tax lawyer or accountant can help you develop an installment agreement to submit to the IRS.

4. Never Meet with the IRS Alone

If you must attend an IRS interview, you should have a tax attorney represent you, regardless of the nature of the meeting. Your attorney can answer all questions on your behalf.

5. The IRS Is Not Infallible

The IRS sometimes has trouble keeping track of your income and how much you owe. This is especially common if you have been making payments under a payment plan. The IRS makes mistakes. Always request and review the relevant documentation to make sure it is correct.

You should also remember that the government may have received incorrect information from third parties. For example, your employer may have misrepresented your total gross income on your W-4. This can trigger an audit and make it appear that you owe more taxes than you do.

6. You Have Due Process Rights

The IRS can't seize your assets, levy your bank account, or garnish your wages without giving you written notice. You'll also have an opportunity to challenge the government’s claims. When you challenge an IRS collection action, the agency must cease all collection activity until your administrative appeal is complete.

Tax Court cases can take a long time to resolve and may keep the IRS from collecting for years. However, before taking your challenge to court, it is usually best to meet with a tax attorney to assess whether your challenge has merit. If it finds in favor of the IRS, the Tax Court can impose additional penalties. The same is true if the court believes your challenge was frivolous.

7. You May Be an Innocent Spouse

Are you widowed, divorced, or separated? Are you experiencing tax issues because of something your soon-to-be ex-spouse did?

If you can demonstrate that you played no role in your former spouse's actions, the IRS may provide you with “Innocent Spouse Relief.” This may result in the government writing off your entire tax bill. (The various states also offer some form of relief to innocent spouses.

8. You Don't Go to Jail if You Can't Pay

Despite what you may hear, nobody goes to jail simply because they owe federal taxes. You may go to prison if the government proves you committed tax fraud or are guilty of tax evasion. However, they won’t imprison you for not being able to pay the full amount of your tax debt.

If an IRS agent threatens you with jail time, you should immediately meet with a tax attorney. They’ll contact the agent handling your case and find out what your tax issue entails. They can also help you pursue legal action if you believe the IRS violated your taxpayer rights.

9. You Have Options When You Owe the IRS

People who owe taxes have several options available to them. Obviously, if you can pay your tax bill in full, do so immediately. Otherwise, you may face tax penalties and interest. If you don’t have enough to pay your taxes in full, you can contact the IRS for help.

Some of the payment options available to you include:

• Hardship program: If you cannot pay your taxes after paying basic living expenses, you can apply for the IRS's currently not collectible status. Your eligibility for this program depends on your financial situation. If the IRS assigns your case a currently not collectible status, it cannot take collection actions against you for up to ten years. You will continue to owe the unpaid taxes, and the IRS will continue to charge penalties and interest during the ten-year period. The IRS will review your case every two years to determine if you can pay the balance due.
• Installment payment arrangement: The IRS allows you to make monthly installment payments through a streamlined installment plan. You can arrange for an online payment agreement at IRS.gov or do so in writing. The IRS does not have direct pay via credit cards and debit cards. However, you can make payments through a trusted third-party payment service. You can also set up direct debits from your bank account when you submit your installment agreement request.
• Bankruptcy: In some cases, the courts will discharge state and federal income taxes in a Chapter 7 bankruptcy proceeding. Bankruptcy rules are complex, so we recommend speaking with a bankruptcy attorney before taking this step.
• Offer in compromise: The IRS will accept a settlement or reduced payment on your tax debt in limited circumstances. This is called an “offer in compromise.” If the IRS accepts your settlement offer, it will remove any federal tax liens and offer you a fresh start.

Remember, there is no guarantee that the IRS will accept your offer in compromise or monthly payment request. However, their primary goal is to have you pay your taxes.

While the government would love to receive your payment by the original due date, it would rather get their money over time than not at all. The government would also like to avoid spending money on collection activity if it can do so.

10. Respect the Power of the Tax Collector

Being unpleasant or difficult with IRS representatives simply because you are angry about having to pay your tax bill is not helpful. Your odds of getting a short-term payment plan are much better if you are polite and cooperative.

If you cannot work out a solution with the IRS, the government can take the following actions:

• File a tax lien against you
• Assess high-interest charges on your tax debt
• Levy your bank account
• Assess late payment penalties on all tax years with a balance due
• Seize future tax refunds
• Garnish your wages
• Close down your business
• Seize and sell your home and other real property
• Assess you personally for corporate employment taxes
• Put you in a monthly installment payment arrangement you can't afford
• Contact your banker, neighbors, friends, and business associates concerning your tax liabilities
• Pursue people who purchased or received your assets

Many people vilify IRS agents. But they are people just like you, trying to do their jobs.

Get Legal Help Paying Taxes You Owe to the IRS

Paying the taxes you owe the IRS is important because non-payment can significantly impact your finances and quality of life. An experienced tax attorney can help you devise a payment plan that fits your budget.

If you are the subject of an IRS tax audit, a tax lawyer can protect your rights and work with the IRS to ensure you are only responsible for what you owe. The same is true if you’re dealing with back taxes, criminal tax matters, tax litigation, or serious issues with the IRS.

Tax issues and IRS matters can be challenging. A tax attorney has advanced training to offer tailored advice to resolve complicated tax situations.