If you've received a notice from the IRS about back taxes, there are some practical steps you can take to address the issue.
First, if you think the IRS sent the notice in error contact the Taxpayer Advocate Service (TAS). They can help you resolve such a dispute. You must be prepared to provide relevant documentation, such as copies of past returns.
If the notice is not a mistake, you will need to file tax returns for past years. The sooner you file the required returns, the better off you'll be – avoiding costly penalties and interest. In addition, filing these tax forms now will help you understand what your tax obligations really are – so you know what you owe, what you can deduct, and what penalties may be assessed.
Whatever your situation, paying the full amount of your tax debt A.S.A.P. is always the least expensive option because it helps prevent the accrual of penalties and interest. Also, if you’re owed a tax refund, you are required to pay off your tax debts before your refund can be issued.
Of course, not everyone can afford to make a full payment on their back taxes. Because of this, the IRS allows some taxpayers to pay through an “Installment Agreement.” This type of payment plan allows you to gradually pay down your tax debt, though it comes at the cost of continued penalties and interest charges (plus an agreement fee). With an IRS payment plan, you will be expected to make monthly installment payments until your tax debt is paid off. While it can be an expensive option, you should consider requesting an installment agreement if making a full payment isn't a possibility.
Although it’s less common, the IRS may consider an “Offer in Compromise” depending on your particular situation. An Offer in Compromise is basically an agreement between the IRS and a taxpayer, which allows that taxpayer to settle their tax debt for less than the full amount owed. Taxpayers undergoing significant financial hardship may even be granted a temporary delay in the collection of their tax debt. You would not be required to make payments during the delay, however, penalties and interest will continue to add up (meaning your total amount owed will be greater when the delay ends).
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.
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. A CPA is usually good at assessing the situation to make sure that you pay only what you owe (and nothing more).