Definition of Back Taxes:
Unpaid back taxes can be a serious issue for many taxpayers who don’t have the means to pay them. The Internal Revenue Service (IRS) has recently turned over the collection of unpaid back taxes to a private collection agency. Taxpayers who’re lacking the method to repay taxes might often negotiate a reduced settlement via an offer in compromise with the IRS either through or directly to a tax attorney.
What is Back Tax? and How to Negotiate Back Taxes With IRS?
The IRS is aware that taxpayers continue to struggle years after the U.S. economy sunk into recession.The slow recovery means that many people still struggle to generate income, but they also owe taxes from past years. The IRS may be more willing than ever to work with delinquent taxpayers, given the widespread financial pain felt by so many. But taxpayers who want extra consideration need to abide by requirements to contact the IRS to let them know what is happening and to file formal paperwork on time
With the way the economy has been over the last half-decade, one of the most common questions I hear is “I owe the IRS years of back taxes, what’re my options?” Many taxpayers gear towards the Offer in Compromise (OIC) program, perhaps falling victim to the television commercials late at night that claim “we could get you a settlement for pennies on the dollar.”
No person who’s reasonable would overlook the chance of settling their IRS debt for “pennies on the dollar,” however, the reality’s those kinds of resolutions are rare. While an OIC might work for some, it certainly doesn’t work, or make sense, for all. The positive news’ the IRS has several other available options to ease the back taxes of an individual. If you cannot pay the IRS taxes you owe, the IRS will encourage you to charge the extra amount on your credit card. This may be a bad idea, because the interest on your credit card will probably be a lot higher than the interest and penalties the IRS will charge if you reach an agreement with them.
The IRS particularly focused on the following changes:
- Making it simpler for taxpayers to get lien withdrawals after paying tax bills.
- Expanding a streamlined Offer in Compromise program to cover more taxpayers.
- Creating simpler access to Installment Agreements for more small businesses who are struggling.
- Withdrawing liens in many cases where taxpayers has entered into a Direct Debit Installment Agreement.
- Upsurges the dollar threshold significantly when liens are issued generally, resulting in lesser tax liens.
From a taxpayer’s point of view, it’s great to see the IRS offering more options for Americans struggling to keep up with their tax payments. But if you do fall behind, don’t just stand there – take the following steps to resolve your debt with Uncle Sam.
Suggested Read: What are the best ways to reduce your taxes?
Always File Your Tax Return
If you owe the IRS an amount that you cannot pay in one lump sum with a return, it is important to file the return anyway, says peter, an IRS Tax Attorney in the office of Defense Tax Partners in Los Angeles, CA.
“This’ll decrease some of the penalties,” he explains. “Clients occasionally tell us that they didn’t file a return due to the fact they couldn’t pay the tax due. Usually, this leads them to pay a penalty that’s significantly a lot more than they would’ve paid had they at least filed the return.”
IRS Problems Gets Worse with Age
It is always best to deal with these issues upfront and in a proactive manner. “The IRS won’t instantly pursue you for delinquent tax interest and penalties, “In most cases, it’ll take months before the IRS begins collection efforts.”
Initially, collection efforts can seem benign, and consist of only computer-generated letters. However, at some point, the IRS will start very aggressive collection tactics, including wage garnishment in which the IRS contacts your employer advising that you’ve got delinquent tax liabilities & that any wages that would be paid to you should be paid to the IRS.
Go For an Installment Agreement
I’m always surprised to discover how less taxpayers thought of entering into an installment agreement to pay off their IRS back taxes, particularly considering it’s often the best option for a variety of reasons. A taxpayer in an installment agreement is labeled as compliant by the IRS, which decreases the amount of IRS phone calls and letters in the short term while displaying a taxpayer’s willingness to work together in the long term.
When To Use. The easiest way to answer this question is to list when an installment agreement should not be used, which is when another option is far superior. For instance, if a taxpayer owed a large balance to the IRS and only could afford to make minimal installment payments, another resolution option’s more needed because the taxpayer would be barely paying off the principal of their debt. That being said, the fact remains that an installment agreement always should be considered, even if only as an interim solution while thinking about other methods.
Pros. Prevents IRS from taking further collection action; Makes IRS content; almost always available; flexible.
Cons. Interest continues to accrue; could take years to pay off tax debt; must remember to make payments or else default (not a problem if using the direct debit option).
Stick to Your Payments
Do not fail to make your payments on time to the IRS. If you violate the terms of your payment arrangements, the IRS will attach & seize property that’s owned by you, including bank accounts and even the mortgage on your home. However, if you speak with them in the event that you are having problems making your payments, you should be able to work through it.
Get Professional Help
A professional representative usually can be a big help in negotiating the most favorable possible installment agreement or compromise. That said, beware of the “pennies on the dollar” firms or 1-800 number firms that advertise on late-night television, “In most cases, these firms will just take a client’s money and conduct minimal or no services,” “Several of these firms have been prosecuted in their states of origin for unlawful and deceptive business practices.” If you’re interested in getting representation, interview 2 or 3 potential firms within your city,”. Ensure that IRS collection resolutions & IRS tax controversy are the backbones of their practices. Many Certified Public Accountants (CPAs) and attorneys conduct tax planning but hardly interface with the IRS. It is important that your representative has many experiences in negotiating with the IRS in back taxes payment cases.
If you haven’t filed your taxes in a few years, you may be wondering what options you have. You may be surprised to learn that filing your tax returns can be the quickest way out of tax trouble. But you need to protect yourself. Here’s how: Back Taxes: Essentials for Preparing and Filing Late Tax Returns
Above all, the one thing you shouldn’t do is to do nothing. Taxpayers who don’t take action will find themselves embroiled in the IRS collection process. Did you know? The IRS can levy your wages and bank accounts, or even place a Federal tax lien on your property! If you’ve received an IRS notice about a levy or lien, it’s still not too late to get tax debt help.
Nobody is saying that the federal government is getting all warm and fuzzy about late tax payments. However, the IRS does offer more programs than ever before for Americans to get back on track with their taxes. The key is to act quickly and find a resolution as soon as possible.
The possibility of losing wages or property is very real. You should take all IRS notices seriously because even if they are the ones who made an error, you are the one who will be paying for it until/unless it’s addressed. You may even want to consider hiring a Certified Public Accountant (CPA) to help you deal with back taxes.