Resolving Your Tax Liability Issues Effectively
Things to know about the IRS Collection Process
You must cooperate with the IRS in order to avoid the IRS taking enforced collection action against you. Such enforced collection may include levying your bank accounts or garnishing your wages. Generally, as long as you voluntarily cooperate with the IRS to resolve your tax debt, the IRS will not take enforced collection action against you. You should take action to resolve your tax debt as soon as you receive any correspondence from the IRS.
Options For Resolving Your Tax Debt:
1. Pay the balance in full. Often times you may find that you are better off paying your tax bill with a credit card because the interest and penalties charged by the IRS exceed the interest charged on a credit card.
2. Have the IRS declare your tax debt to be currently non-collectable. This is not a permanent designation, but it may provide you with relief during a period where you do not have the assets or income to pay the tax bill or even be in a position to make monthly payment. In order to qualify, you will be required to provide a financial affidavit with supporting documentation to establish that you do not have any assets that can be liquidated or encumbered and your monthly expenses equal or exceed your monthly income. This designation does not mean that the debt goes away, it means that the IRS has determined that you cannot pay the debt at this time. Penalties and interest will continue to be added to the debt.
3. Set up an installment payment plan. The IRS will accept monthly payments to pay off your tax debt. The IRS will require you to fill out a financial affidavit to establish your monthly income and expenses if you owe more than $50,000. If this is necessary, you will likely be expected to pay the difference between your income and expenses on a monthly basis.
4. File an Offer in Compromise. An offer in compromise provides an opportunity to settle your tax debt, often for less than the full value of your IRS debt. The IRS will consider your ability to pay the full amount owed, your income, your expenses, and equity in any assets that you own. The IRS generally accepts offers if the amount offered equals the most the IRS could expect to collect within a reasonable period of time.
Amanda Cruser spent years working with the IRS as a federal prosecutor, and she understands the process involved and the strategies you face. She is also a Certified Public Accountant (CPA).