Expert advice on dealing with the IRS on back taxes and collections
The IRS wields a great deal of power when it comes to enforcing the tax laws and collecting tax revenue for the government. However, that power is not absolute and taxpayers have many rights when the IRS is attempting to enforce the collection of a tax debt. This article will briefly discuss the main points to consider when dealing with the massive IRS collection machine.
- make sure you are current with all tax filing obligations
- understand your options
- get legal representation
- delay IRS collection activities for as long as possible
- offer the IRS solutions to your tax problem
- ignore an IRS collection notice
- miss an IRS deadline
- lie or otherwise misrepresent information to an IRS collection officer
- miss an IRS payment
- provide any more financial information than is absolutely necessary
Do make sure you are current with all tax filing obligations
The IRS will not deal favorably with taxpayers who owe them money and also have unfiled tax returns. For instance, if you owe taxes for 2006-2010 and have yet to file your 2011 and/or 2012 tax returns, the IRS will not enter into a payment arrangement or process an Offer in Compromise for you. Remember that the tax filing obligations are different from the ability to pay any amounts owed on the tax returns – you want to file even if you cannot pay.
Do understand your options
Before you speak with the IRS, make sure you understand what legal options are available to you. In most collection cases, you can either (1) pay the amount in full, usually within 60-90 days; (2) pay the IRS over time with a monthly payment plan; (3) pay the IRS off with less than what is owed via an Offer in Compromise; (4) file bankruptcy and discharge some/all of the tax liabilities; and (5) pay nothing, be found currently not collectible and try to pay nothing due to an expiration of a statute of limitations.
Do get legal representation
You are certainly permitted to represent yourself in any IRS matter and many taxpayers do so, sometimes with good results. However, you are also permitted to have representation (attorney, CPA, Enrolled Agent, etc.) at any point in the IRS collection process. Thus, you could ask the IRS to stop (briefly) the collection activities to permit you to obtain competent representation. This is your right as a taxpayer and do not be afraid to exercise this right if you ever feel the need to have professional representation.
Do delay IRS collection activities for as long as possible
In many cases, time is what is needed in order to resolve a current tax debt. The IRS, however, does not like to give any more time than is absolutely necessary (in its slanted opinion) to obtain a quick payoff of the liabilities. If you can delay the IRS from immediately collecting the tax debts, you may be able to sell some assets, borrow some money or find other sources to pay off the tax bill, either in full or over a shorter period of time.
Do offer the IRS solutions to your tax problem
In many cases, if you can offer the IRS a solution to your tax issue (favorable to you of course) and if it makes sense to the IRS agent, he or she may very well accept your proposal with little or no modifications. It never hurts to offer solutions, as no one has a more vested interest in your case than you. Let the agent know that you may want to file an Offer in Compromise or you seeking counsel from a bankruptcy attorney (if this is in fact true) as these may open up some options with the IRS to resolve your tax liability on more favorable terms. In any event, the solution that you offer will almost certainly be better than the solution the IRS proposes.
Do not ignore an IRS collection notice
If you receive an IRS notice, it is always best to stay informed and know what is occurring with respect to your IRS tax liabilities. Many notices involve your legal rights and ignorance here is definitely no excuse/defense. The IRS can enforce its collection activities and file liens or levies against you even if you do not respond to the notice (and maybe even because you failed to respond to the notice).
Do not miss an IRS deadline
If you miss an IRS deadline, the IRS can revoke whatever agreement may have been in place and start enforced collection. If you ever find yourself in this position, it is important to notify the IRS as soon as possible and rectify the problem.
Do not lie or otherwise misrepresent information to an IRS collection officer
An IRS collection officer, called a revenue officer, has many powers that a typical collection agency lacks. They can be very aggressive and offer limited or no choices as to a way out (besides fully paying a balance that he or she knows cannot be paid in full). It may therefore be very tempting to lie or otherwise fail to provide all information, but this temptation should always be avoided. When you owe the IRS money, you are dealing with a financial matter. When you lie to the IRS on a collection statement or other document, you are turning your financial problem into a criminal problem and this is never a good trade!
Do not miss an IRS payment
If you have agreed to make monthly payments to the IRS via an installment agreement, do not miss any of these payments. If desired, you can sign up for a direct transfer from your bank account to the IRS. While this would ensure that no payments are missed (assuming there is money in the account!), it also provides the IRS with your bank account information (not always the best of idea!). If you do miss a payment (for whatever reason), make sure you notify the IRS of this before the IRS notifies you. If you can correct the problem, the IRS may be more forgiving.
Do not provide any more financial information than is absolutely necessary
The IRS will often ask for financial information via its own Forms 433-A, B and/or F. In many instances, it is mandatory to provide this information IF you wish to work out a payment plan or other more favorable collection alternative. But there are also many instances where a limited amount of information, if any, is actually required. The IRS often runs special collection programs, such as the Fresh Start program (which permits those who owe $50,000 or less to qualify for a monthly payment agreement).
If an IRS employee is asking you for this detailed financial information, it is perfectly fine to ask him or her what options are available without providing this information. For instance, if you owe $52,000 to the IRS and paid $3,000, you would now owe less than $50,000 and may now qualify for a more streamlined installment agreement. If you do need to provide this information, make sure you do so at home and with access to your records, as opposed to in the IRS office and with the pressure of a revenue agent sitting there or compiling the information.
In any dealings with the IRS collection division, you first want to make sure you avoid any enforced collection activities, such as wage or bank seizures (called ‘levies’). If you cooperate with the IRS and provide the bare minimum amount of information as is necessary, you very likely will be able to negotiate a settlement/resolution that you can live with (even if you are not happy about it). By following the rules outlined briefly in this article, you can determine how best to handle your collection matter, including the need or desirability of hiring a legal representative to handle your case. Best of luck.