When the IRS notifies taxpayers of its intention to collect tax debt, it is a serious matter that must be taken seriously. However, there are reasons why the IRS takes such action, mainly for failing to pay off tax debt.
So, what should you do if the IRS tries to collect your tax debt? In this article, we will tell you how to respond and how to pay off tax debt so that the authorities stop pursuing you. Keep reading to learn more!
Understand the IRS Collection Process
The IRS has a process that it must follow before it can proceed with any collection actions. In other words, the IRS will not show up at your home unexpectedly, without any explanation or notification. They are required to notify taxpayers of any tax concerns and provide them the opportunity to settle the matter by the deadline.
The IRS primarily communicates through written notices or letters, informing the affected party of the issues, whether it’s unpaid taxes, missing filings, audit requests, etc., and includes other details, such as response deadlines.
When these initial letters are ignored and no response is received, tax authorities will issue a final notice informing taxpayers of enforcement proceedings, such as tax liens and levies.
Common Reasons for IRS Debt
Tax debt can arise due to many reasons, but the most common include unpaid taxes or underpayment, unfiled tax returns, and accumulated penalties and interest.
You owe taxes when you fail to pay the full amount by the deadline (e.g., April 15) or underpay, which occurs when you report less income than earned or claim inaccurate deductions/credits.
Unfiled tax returns can also lead to a tax shortfall. This happens when you fail to file needed tax returns (Forms 1040, 8938, 3520, 5471, or 8621) before the deadline or do not file at all. If you continue to ignore your debts, fines and interest will accumulate, further increasing your tax liabilities.
First Steps to Take When You Owe the IRS
Getting a notice from the IRS is a nerve-wracking situation. What will resolve the issue is to take action promptly.
Time is of the essence. When you get a letter or notice from the IRS, review it and pay attention to the details. Verify the amount and other personal information to ensure they are accurate.
Next, gather all of the necessary paperwork, such as financial documents, and organize it so that it is easy to follow and available when needed to support your specific case.
How to Pay Off Tax Debt
Pay in Full (If Possible)
The quickest approach to pay off tax debt and eliminate the associated problems is to pay the entire amount immediately. This will resolve all tax difficulties, including fines and interest, limit debt accumulation, and stop any collection actions.
Set Up an IRS Installment Agreement
An Installment Agreement (IA) allows you to pay off your debts in periodic installments, helping you manage your debts more effectively and easing financial pressure. There are many types of Installment agreements provided to accommodate different financial situations that taxpayers face. However, each has its own requirements, so ensure you carefully consider the options.
Consider an Offer in Compromise (OIC)
With an Offer in Compromise (OIC), taxpayers can settle tax debts for less than the full amount due. An OIC is an option designed for individuals facing financial difficulties.
To qualify for an OIC, the IRS will evaluate your financial situation, including income and spending, to establish your ability to pay your tax debts.
Apply for Currently Not Collectible (CNC) Status
A Currently Not Collectible status pauses any collection actions and is given to those cases where, if the taxpayer pays the debts, it would result in significant hardship.
It should be noted that with this alternative, your debts are not eliminated; instead, they are temporarily halted until your financial condition improves. Eligibility requires demonstrating that paying the debt would result in considerable hardship (for example, inability to fund basic living expenditures such as rent or food).
Request Penalty Abatement or Relief
Suppose an individual is unable to pay their tax responsibilities due to illness, financial difficulty, or other valid reasons. In that case, they can request penalty abatement or relief, which reduces or eliminates fines, lowering their total tax liability. Documentation, such as medical records or financial accounts, is necessary to demonstrate the reason for noncompliance.
What Happens If You Ignore IRS Collections?
Ignoring IRS letters and warnings will lead to more complex complications.
In addition to accruing interest and penalties, IRS levies can result in the potential loss of assets. In these cases, they can legally seize things like property or bank accounts to satisfy your tax debt.
If you are faced with an IRS collection action, we suggest that you contact professionals directly to help you navigate the difficulties.
How Greenberg Law Group, P.A. Can Help
When it comes to facing tax issues, you want a professional who knows what they’re doing because every step is essential.
Greenberg Law can assist with tax problems, ranging from basic tax filing to addressing IRS letters and collection actions. Don’t wait until it’s too late! We can show you how to pay off tax debt the right way. Contact Greenberg Law Group, P.A. today!
