What should you do if you owe back taxes?
Find out exactly what the IRS records show.
Most people who call me know roughly what they owe. What they usually do not know matters just as much: which years make up the balance, whether every required return is filed, how much is tax versus penalty versus interest, whether collection has started, and how much time the IRS legally has left to collect each year.
Every one of those facts changes which options are real. That is why I start with the account, not with a program.
How long does the IRS have to collect?
The IRS generally has ten years from the date a tax is assessed to collect it. Calculating that date is not as simple as adding ten years, because certain events suspend or extend the period, and different years carry different dates.
Where each year’s clock stands is one of the first things I pin down. A balance with two years left on the statute and a balance with nine call for different strategies, and the same monthly payment can be a good arrangement on one account and a poor one on another.
What are the options?
There is no one program that is right for everybody. Depending on the account and your finances:
- An installment agreement. Paying the balance over time under an arrangement with the IRS.
- An Offer in Compromise. Resolving an eligible liability for less than the full amount when the requirements are met.
- Currently Not Collectible status. Collection pauses when the financial information supports hardship. The debt remains, and the collection clock keeps running.
- Penalty relief. Removing qualifying penalties shrinks the balance itself, and the interest charged on those penalties comes off with them.
- Paying the balance, when the numbers say that is cheapest. Sometimes it is, and I will tell you so.
The IRS evaluates these through its own financial formulas. We run your numbers the same way the IRS runs them before proposing anything, so the proposal is one the IRS can actually accept.
Filing compliance comes first
Back taxes and unfiled returns often travel together, and most IRS resolutions require current filings before the IRS will put an arrangement in place.
If returns are missing, we identify them and determine what needs to be filed. How those returns are prepared also matters, because they can change the balance we are trying to resolve. Filing compliance and collection strategy are one plan, not two jobs. We cover the filing side on our unfiled returns page.
What about the ads promising to settle for much less?
The program those ads describe is real. It is the Offer in Compromise, and the IRS accepts offers every year.
Qualification runs on your facts: income, allowable expenses, assets, and ability to pay, through the IRS’s own formulas. Nobody can know whether you qualify before doing that math.
I will not tell you what the IRS is going to accept before I have run your numbers. If an Offer in Compromise fits, we will know why. If another resolution fits better, I will tell you that too.
Do you always need professional representation?
No. A balance you can comfortably pay, or resolve through a simple payment arrangement you set up online, may not need representation.
It matters more when several years are involved, when the balance is significant, when returns are missing, when a Revenue Officer is assigned, when collection action is underway, when appeal rights are in play, or when you are choosing between several resolution options and the wrong choice is expensive.
That is when I want to see the account before recommending a direction.
How I handle a back-tax case
- Get authorized. We file a power of attorney and speak to the IRS for you, on your behalf, so you do not have to.
- Review the account. Every year, every balance, the collection history, and the collection deadline on each period.
- Fix filing compliance. Missing returns get identified and filed the right way.
- Review the financial information. Income, expenses, assets, and equity, through the same standards the IRS applies.
- Compare the options the facts support. Agreement, offer, hardship status, penalty relief, or a combination. Not a predetermined program.
- Establish the resolution and make it hold. A resolution only works if it is workable after it is set up, so this does not come back to haunt you.
I have been writing about IRS collection problems for years
Back taxes and IRS collection are the central subjects of my books.
How to Get Out of IRS Problems walks through IRS notices, back taxes, penalties and interest, liens and levies, Offers in Compromise, and the broader collection process, step by step. My earlier book, IRS Secrets Revealed: How to Survive IRS Audit, Collections & Appeals, grew out of experience I had already accumulated representing taxpayers, and covers the collection alternatives, Collection Due Process, and Appeals.
I do not mention the books because reading one determines what you qualify for. It does not. I mention them because they are tangible evidence that IRS collection and resolution are not subjects I recently added to a website.
Complimentary PDF copies of both books are available through BestTaxPro™.
Why work with BestTaxPro™?
You work directly with Joshua A. Webskowski, EA, CFP®, NTPI Fellow, USTCP.
Josh has worked in taxation since 2003 and has represented taxpayers in IRS collection matters, examinations, and Appeals. He is an Enrolled Agent, a CERTIFIED FINANCIAL PLANNER® professional, a Fellow of the National Tax Practice Institute, an author on IRS representation and resolution issues.
His CFP® certification adds a financial perspective when a tax decision touches cash flow, assets, retirement accounts, or business decisions. His authority to represent taxpayers before the IRS and the U.S. Tax Court comes from his EA and USTCP credentials.
He has represented taxpayers in IRS collection matters across every size of balance.
When you contact BestTaxPro™, you are working with tax professionals who handle IRS matters. Not a sales center that hands the case to someone else after you sign up.