005 – Resolving IRS Problems: Offers in Compromise, Installment Agreements and More
Owing the IRS is scary. It’s also stressful. They are quick to send out collection letters and notices constantly reminding you of the growing balance that you owe. If you don’t owe the IRS, don’t assume that someone did something bad or illegal and that’s why they owe back taxes. Often, good, law abiding people end up in a bad situation that results in a large tax debt. This can come up if a lender writes off a large chunk of the debt you owe or because you have a lot of medical bills you decide to take a distribution from your retirement account and you don’t withhold the proper amount for the tax you owe.
No matter what your reason for owing these back taxes or how many years you owe, you can have some hope that there are ways for you to resolve this tax debt. But what happens if you choose the ostrich defense and put your head in the sand hoping it will go away without your input? Only the worst possible outcome: the debt continues to grow and more penalties and interest accrue and the IRS becomes more aggressive with their collection tactics leading to liens on your property and garnishment of your paycheck.
So what can you do? The good news is that when you are dealing with the IRS you have a number of options available to you. The first step in resolving any tax issue is becoming current with the IRS. That means that you must file all of your outstanding tax returns for the past seven years. If there are returns that have not been filed the IRS is not going to work with you to resolve your case. When filing these returns (especially when there is threat of a garnishment or levy) I recommend filing them in person at your local IRS office. Take an extra copy with you so the IRS employee you meet with can stamp your copy as received. That way you have proof of the filing of the return in the event you have to get on the telephone to try to resolve a wage levy before the return is completely processed. You also have to be current with your tax withholding. This may be as simple as correcting your Form W4 with your employer to make sure you have the proper number of deductions from your paycheck. But, if you are self-employed you will have to make sure you are making your quarterly tax deposits to be current.
Once you are current, you have a few options to resolve your tax problems. On this episode of the podcast we will introduce:
- The Offer in Compromise
- The Installment Agreement
- Noncollectable Status
We also discussed the process of an offer in compromise and the forms you will need:
I also introduced the book, Stand Up to the IRS, through my Amazon affiliate link, for you to review if you are interested in resolving your tax problems yourself.