Realizing that you don’t have the money to pay the Internal Revenue Service (IRS) what you owe in full and on time can be frightening – especially if it’s never happened to you before.
The IRS has a process for taxpayers in this position. Understanding what it is and what to expect can help ease your mind a bit and help you explore your options.
What are the steps in the IRS collection process?
After you miss the deadline for paying your taxes in full, the IRS will send you their first bill. This will be for the taxes you owe plus interest and penalties. Even if you can’t pay the entire bill by the due date, you should pay what you can. This will help cut down on the interest. If you’re able to get a cash advance or loan for the amount, this could actually cost you less than if IRS interest and penalties continue to accrue.
Another option is to contact the IRS and request a payment plan where you pay what you owe in installments. The IRS has short- and long-term payment plans.
If you’re unable to pay the full amount you owe, even with an installment plan, you can apply for an Offer in Compromise (OIC). If the IRS accepts your OIC, it will allow you to resolve your debt by paying a reduced amount. To qualify for an OIC, you need to have filed all of your tax returns and paid any required estimated taxes and federal tax deposits.
Whatever you do, don’t ignore the IRS
It’s crucial that you don’t ignore any bills or other communications from the IRS. By contacting them and informing them what the situation is, you’re letting them know that you’re aware of your debt and are making a good-faith effort to pay what you can.
If you don’t contact the IRS and reach some type of payment resolution, they will initiate collection efforts. These can have a significant effect on your life and your business. For example, a Notice of Federal Tax Lien notifies your creditors that you owe the IRS. It also places a lien on your property and is part of the public record.
No one looks forward to dealing with the IRS. It can be frustrating and also daunting. If you’re dealing with collection efforts by the IRS, it can be helpful to have experienced legal guidance.