As a result of hardship or an audit, you might experience difficulty affording to pay your tax and it can be a lot overwhelming. As a result of continued non-payment, the IRS may send you to collections, this can turn into a more difficult situation. The best thing to do at this point is to make your payments in full and on time. If you find this difficult, there are steps you can take before you are sent to collections process in order to avoid proceedings.
- Make an Offer in Compromise – You will be able to settle your debt with the IRS for less than you owe with an offer in compromise. A form 656 will be provided for you to fill your information on your net assets and show records of your cash flow being less than the total amount of debt owed. You will need to be prepared to pay for the settled amount in full at the time of the agreement when an offer in compromise is approved.
- Communicate and Pay as Much as You Can – one of the best things to do when you are not able to pay on time is to keep an open line of communication with the IRS. You can then make payment for as much as you can when you file your return and then continue to pay as much as often as you can while keeping up communications with the IRS.
- Request a Payment Plan – The best solution between you and IRS is to pay what you we. The IRS determines the amount you are expected to pay monthly in order to settle your amount within a predetermined timeline. The most important part is that you always make your payments on time once a plan has been reached so as to prevent defaulting on your payment plan.
- Take Out a Loan – Depending on how much you owe and how much interest you’ll end up paying, taking a loan to pay the IRS may be an option for you. Be sure to compare interest rates and fees between payment plans with the IRS and repaying on a private loan, however. It may make more sense to set up an installment plan with the IRS instead. If none of these options are possible, however, and the IRS has begun collections proceedings, try these tips to deal with IRS collections:
- Apply for Taxpayer Assistance Order – Taxpayer Assistance Order (TAO) can be applied for if you are able to show that the collection presents a significant hardship on you and your family financially. This will stop the collections process and acquisition of levied property but it will not release you from the tax liability.
- Check Your Statute of Limitations – Your taxes actually have a statute of limitations – 10 years from the date that your original tax assessment was made. When your taxes owed have exceeded this time period, and you’re facing collections, you can request that your taxes be dismissed due to the time that has passed.
- Seek a New Audit – If you are facing collection proceedings due to an audit, and you never received notice of an audit, you can request a new one be conducted.
- Ask for “Innocent Spouse” Relief – If you are not aware of the item or cause that caused the tax liability even if you filed joint taxes, you can request to be granted innocent spouse relief and be released of liability as a spouse.
Whichever route you take, it’s imperative that you take action as quickly as possible. When you don’t address IRS taxes owed or collections, you can face severe consequences such as federal tax liens and levies on your property.