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Ten Things to Remember When You Owe the IRS

The IRS Restructuring and Reform Act of 1998 was a landmark law that forced the IRS to change the way it treated taxpayers. The legislation required the IRS to more fully communicate with the public and grant taxpayers "due process" rights. In other words, the IRS could no longer take action to collect unpaid taxes without hearing the taxpayer's side of the story.

While those rights will ensure that you have a fair hearing, if you are still found to have unpaid taxes the IRS will take action to collect what is owed. If you owe money to the IRS, here are ten things to remember:

1. Don't ignore any IRS notices.

Many people make their tax problems worse by ignoring the IRS notices they receive by standard or certified mail. Some people think they can avoid IRS notices sent by certified mail by not answering their door or picking them up at the post office, but they are mistaken.

The IRS sends notices by certified mail so that you can't claim you were denied an opportunity for a hearing. The IRS only needs to show it attempted to give you notice of your rights by certified mail delivered to your last known address. It does not need to show that you accepted delivery. Refusing to accept the mail only deprives you of your right to contest your tax bill.

2. The IRS must treat you courteously.

The IRS publication entitled "The IRS Collection Process," revised in 2018, says that you have a right to representation by an attorney, CPA, or enrolled agent and to be treated in a professional, courteous manner. If you do not like the way you are being treated by an IRS representative, 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 is usually a worthwhile investment of your time and money. The tax expert will tell you how to prepare for your interview, how to conduct yourself, and how to recognize situations where the IRS revenue officer may have overstepped his or her authority. The IRS is essentially a bill collector for the government and you need to be clear on your rights and obligations before you meet with an IRS representative.

4. Never meet the IRS alone.

If you have been summoned to an IRS interview, it is usually a good idea to have a tax attorney represent you. If you are nervous about speaking to a revenue agent, you may have your attorney answer all questions on your behalf. Additionally, a tax attorney will be familiar with the common questions asked during an interview so you have the necessary documents and explanations prepared beforehand.

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, so always request and review the relevant documentation to make sure it is correct.

6. You have due process rights.

The IRS can no longer simply take your bank account, automobile, or business, or garnish your wages without giving you written notice and an opportunity to challenge its claims. When you challenge an IRS collection action, all collection activity must come to a halt during your administrative appeal.

If you challenge an IRS deficiency finding in the U.S. Tax Court, the IRS cannot collect from you until the court has issued a decision. 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 you really have a case and the correct steps to take. The Tax Court has the power to impose additional penalties if it finds you are wasting its time with frivolous arguments.

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 can show that you played no role in your former spouse's actions to avoid paying taxes, you may be entitled to innocent spouse relief. That relief could result in the entire tax bill being written off. Individual states also grant innocent spouse relief.

8. You don't go to jail if you can't pay.

Despite what you may have heard, in the United States, no one goes to jail for simply failing to pay their taxes. However, you can be sentenced to jail for cheating on your taxes, falsifying information, or taking other actions in an attempt to deceive the IRS.

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 can pay in full, you should pay the taxes you owe so the IRS will leave you in peace. However, if you cannot pay in full, you usually have four options:

  • Hardship program. You can apply for the IRS's currently not collectible status if you are unable to pay your taxes after paying basic living expenses. If you receive currently not collectible status, then the IRS cannot take collection actions against you for up to 10 years. However, you will continue to owe the unpaid taxes and the IRS will continue to charge penalties and interest. Every two years, the IRS will review your financial situation and it will require you to pay your taxes when you can afford to do so.
  • Installment payment arrangement. The IRS allows you to make monthly installment payments through a streamlined installment plan.
  • Bankruptcy. It's not for everyone. However, in some cases, 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. But bankruptcy rules are complicated, so we recommend speaking with a bankruptcy attorney who understands both bankruptcy law and tax law before taking this step.
  • Offer in compromise. This is the IRS version of "let's make a deal." Under certain limited 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, your tax liens are removed and you are given a fresh start.

10. Respect the power of the tax collector.

IRS tax collectors have more power than just about anyone in the federal government to make your life miserable. Being unpleasant or difficult with IRS representatives simply because you are angry about having to pay your tax bill is rarely helpful. IRS agents are often vilified, but they are also people who are just trying to do their jobs and appreciate being treated courteously.

The following is a sampling of what the IRS can do if you fail to resolve your tax issues:

  • 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 you can't afford
  • Contact your banker, neighbors, friends, and business associates concerning your tax liabilities
  • Go after other people to whom you have transferred your assets

Get Legal Help Paying Taxes You Owe to the IRS

It's important to pay the taxes you owe the IRS because non-payment can have a significant impact on your finances and quality of life. An experienced tax attorney can help you work out a plan that fits within your budget and needs, while ensuring proper procedures are followed.

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