Source: Flickr user Phillip Ingham.
Few things can give us instant stress quite like finding out
we owe back taxes.
Some fear of the IRS owes to the level of power the
bureaucracy can wield. Unlike other creditors, the IRS can reach
right into your bank account and take out a payment if it comes
to that. An organization as large as the IRS can also be
difficult to talk to and slow to respond.
On the other hand, the IRS can be practical and at times even
forgiving. You may find individual agents to be extremely
helpful. The law is often on your side in dealing with the IRS as
well. The Taxpayer Bill of Rights, passed in 1996, gives you
In fact, if you need help with back taxes, one place you can
go for help is the IRS itself.
Ask the IRS for an abatement of penalties
Before you start paying back taxes, see if you can have the total
bill reduced. It can't hurt to ask. If you're far behind, a large
portion of your balance may be penalties -- and interest on those
penalties. Try to get the penalties reduced or removed. The IRS
often reduces penalties for various reasons, especially if it
means the underlying tax will be paid and they can close the
Write a letter explaining why you think the penalty should be
removed, or "abated." There is no IRS form to use for requesting
an abatement. You can specifically ask for abatement of the
penalty in the letter you write. If you are behind, you probably
have a reason, whether it was ignorance of the debt,
unemployment, hospitalization, or the fault of a business partner
Your chances of having a penalty abated are better if you
haven't asked for an abatement for the same offense before.
Request an Installment Agreement
If you simply need more time to pay your back taxes, an
installment agreement may keep you out of trouble and provide the
time you need. File "Form 9465, Installment Agreement
The IRS must let you make installment payments if you meet
the following requirements:
- You owe $10,000 or less in back taxes, not including
penalties or interest. The IRS may allow an installment
agreement for amounts over $10,000 if you show you can make the
- You show the IRS that you cannot pay the entire tax when it
- You will pay off the tax within three years under the
- You agree to comply with the tax laws while your agreement
is in effect.
- During the past five years, you (or your spouse, if you
file jointly) have not failed to file or pay your taxes, and
you haven't had another installment agreement with the
Paying on an installment plan doesn't get you out of all
penalties and fees, but it does stop the unpleasant letters and
collection efforts. You may have to pay a fee to set up the
plan, plus interest on the past due taxes. Plus, you may still
owe a penalty for late payment.
You should always pay as much as you can before you request an
installment agreement, and then pay the back taxes as quickly as
you can without jeopardizing your other financial needs.
Get help with disputed back taxes
If you don't understand your bill for back taxes, or if you think
the IRS bill is wrong, don't pay the tax until your issues are
resolved. The IRS can make a mistake, or the information sent to
them may be missing or in error. If you pay a disputed amount,
you may find it difficult or time-consuming to get your money
Of course, don't put off resolving a tax issue or ignore it
just because you think the IRS is wrong. Those penalties and
interest expenses are costly.
If the bill is wrong, write a letter and explain the situation
if you can. You are usually better off writing a letter than
calling for all but the simplest problems. It's usually faster
than waiting on hold, plus you'll have a written record of what
you and the IRS said.
If a tax professional prepared your return for the year in
question, you may want to have that professional write a
letter on your behalf. He or she already understands your case
and has your information and working papers.
You must use old-fashioned paper and an envelope to write to
the IRS. The IRS does not communicate with taxpayers via
Get professional help if the IRS is in the collection
If your problem is serious enough that the IRS is talking about
seizing assets and you owe a significant amount of money, you're
probably past the do-it-yourself stage. The IRS will remove money
from bank accounts and take other drastic measures if it
threatens to. Such actions can disrupt your finances and cause
you real harm.
You are allowed to file an appeal to stop the collection
process. Consider hiring a CPA, tax lawyer, or other tax
professional who is experienced in dealing with IRS problems.
Request an offer in compromise
The last resort for getting help with back taxes is an "offer in
compromise" (OIC). An OIC is the tax equivalent of debt
negotiation, with some similarities to bankruptcy. It's not to be
entered into lightly.
With an offer in compromise, you offer the IRS an amount less
than your current balance of back taxes and hope they accept it.
You will need to offer at least as much as your "reasonable
collection potential" -- that's the value of everything you own,
plus your expected future income less basic living
Take advantage of this little-known
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