AND IMPACTS MANY OF THESE ARTICLES. they are correct at the time they are written. however, IT IS NOT POSSIBLE TO RE-WRITE EVERY SINGLE ARTICLE AS EACH LAW CHANGES. PLEASE MAKE SURE YOU RESEARCH THE LATEST RULES REGARDING YOUR INTENDED FINANCIAL DECISION. IT IS ALWAYS BEST TO CONSULT A PROFESSIONAL (CPA, CFP, ESTATE ATTORNEY, ETC.)
RETIREMENT IS TOO BIG AND TOO IMPORTANT TO SCREW UP
What Happens If You Owe The IRS?
Guest author Robert Nordlander, CPA and Retired Special Agent with IRS-CI lends some of his expertise to those who may find themselves in a very difficult situation.
What happens if you owe the IRS?
The Internal Revenue Service is the most difficult creditor that one can imagine. Poor customer service, unanswered phone calls, unopened correspondence, employees who ghost taxpayers during tax enforcement - the list goes on and on.
The biggest problem arises when you receive a notice in the mail claiming that you owe back taxes. As time goes by, the letters get scarier, and soon you will get a notice demanding payment, threatening to levy your wages, and wiping out your bank account. The good news is this is fixable.
In general, the IRS has 10 years to collect on an outstanding tax debt. This statute of limitations is called the Collection Statute Enforcement Date (CSED).
Owing < $10,000
If you owe the IRS less than $10,000, the United States Congress has mandated that the IRS allow an installment agreement (IA).
Federal law (IRC 6159(c)) requires the IRS to accept proposals of an IA under certain
circumstances:
a. The tax due is $10,000 or less (excluding penalties and interest).
a. No unfiled returns in the last 5 years.
b. Agree to pay the liability within 36 months or before the CSED, whichever is earlier.
c. Stay in compliance by filing tax returns and paying timely during the IA.
d. Have not entered an IA in the last five years.
If you qualify for this IA, you can start completing the process online:
You can also call the IRS or mail Form 9465 (Installment Agreement Request).
Owing > $10,000
If you owe more than $10,000, things get a little more personal, because the IRS will ask more questions about how you are going to pay the bill. They have flexibility in determining how much and when you will pay. They can require a full financial analysis of your income, expenses, assets, and liabilities. They generally will compare your lifestyle to a make-believe family in your county. Using that comparison, the IRS will determine what they believe your payment schedule should be. Of course, every taxpayer is different based on the number of dependents in the household, the amount of income that household is earning, if anyone has special needs, etc.
Don’t expect the IRS to be sympathetic to your large car payment, mortgage payment, private school tuition, or your need for a vacation. They have wide latitude on what they deem as reasonable collection potential. Some broad powers include requiring you to refinance your home, find cheaper housing and transportation, and reduce other personal living expenses. Many times, taxpayers are put into an installment agreement where the total tax debt is paid over a 72 month period or earlier.
Of course, these are broad concepts in negotiating with the IRS. Some other avenues include putting the taxpayer in non-collectible status for a few years, paying some of the tax bill, and seeking complete debt forgiveness. In each of these other options, the IRS considers their ability to collect and the taxpayer’s ability to pay. Every taxpayer is different, so seek professional help as a precaution when owing more than $10,000. Because of various laws, rules, and regulations, negotiating with the IRS is more of an art than science.
Robert Nordlander, CPA.
For over 20 years as an IRS-CI special agent, Robert Nordlander chased tax evaders and money launderers around the world. He now operates a CPA firm (www.nordlandercpa.com) that focuses on forensic accounting and helping taxpayers negotiate with the IRS on their large tax debts.
