If you owe the IRS, there are a some important factors to keep in mind.
The first is that the IRS is like any other "lender" and is interested in collecting what they can, when they can so they are always open to what is known as an offer in compromise (more below). The second is that it's essential to make sure you are well represented when dealing with the IRS and as such, should chose that representative carefully.
There are many reputable firms who are very experienced in tailoring how to best present your situation to the IRS. It is also essential that you understand the importance of attempting to pay the IRS what you can afford to pay. Dealing with a tax debt by sticking your head in the sand and ignoring it only invites the tough tactics often used by the IRS, as well as preclude you from receiving tax refunds you are owed in the future from being paid to you until you address your outstanding debt. Obviously, it is always in your best interest to pay what you owe on time but in these difficult economic times, it is often impossible for many taxpayers to do so. A tax debt relief firm, knowledgeable in navigating the IRS, can often get taxpayers the time to pay and/or reduction in what they owe to help them work through those tough times.
What is an Offer in Compromise?
This is essentially an agreement made between the IRS and a taxpayer to pay less than the full amount that is owed. The IRS will consider an Offer in Compromise if they conclude that the amount owed is otherwise uncollectable either a lump sum or through an installment plan.
The IRS will also consider an Offer in Compromise when there is what is known as doubt as to liability. These are cases where there is a question as to whether the taxes and penalties owed are truly owed. Finally, there are also circumstances where the IRS will accept a lesser amount than owed where payment would create an undue hardship on the taxpayer or its family. For example, a family owes the IRS but needs the funds to pay for a sick child and paying their tax bill in full would come at the expense of that care.
Setting up an IRS Payment Plan
As we've said, it is never advisable to ignore or hide from the IRS when you're unable to pay.
The IRS is very willing to work with taxpayers and will mutually agree on a plan to pay what you owe so often, when you're unable to pay in full, your best option is to request an installment agreement, otherwise known as the IRS Payment Plan. Depending on the type and amount of debt, this will allow you to pay your debt over a period of many months – in some cases up to five years. If you've received a notice from the IRS, your first step to take is to respond by following the instructions enclosed with the notice. Usually the IRS will instruct you to contact them by phone or mail.
You'll receive further instructions and have the opportunity to request an installment agreement. As overwhelming as owing IRS is, always keep in mind that you have options.
The IRS is in the business of collecting taxes and offers a number of options to help get the issue under control and ultimately behind you. To reiterate one final word of advice: doing nothing will not make the situation go away and will make matters worse, often much worse. You can get out from under your situation but only if you do something about your tax debt. If necessary, seek the assistance of an Enrolled Agent. These tax professionals are experienced at setting up both Offers in Compromise and IRS Payment Plans and will often work with you on a success basis meaning you won't be charged unless they are successful.