Owe Money to the IRS but Can’t Pay? 3 Things You Need to Know Right Now

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If you owe money to the IRS — either as an individual taxpayer or on behalf of your business — then there are three things you need to know right now that will likely save you from a world of financial pain and suffering.

  1. The clock is ticking and the onus is on you to act.

The first thing to know is that the IRS isn’t going anywhere. They are, in essence, the biggest and best-resourced collection agency in the history of the world. Forget what you might think about bumbling bureaucrats who became civil servants because they couldn’t hack it in the private sector. The professionals who work at the IRS are competent, capable, hard-working and very driven. Take them lightly at your peril, and don’t wait for them to come calling. The onus is on you to act, and you put yourself in a much safer position if you are proactive rather than reactive. Also remember that interest and penalties are increasing by the day.

  1. You might not owe as much as the IRS claims.

As noted, people who work at the IRS are competent, capable and so on. But they’re human beings — and human beings can make mistakes; just as computers can make mistakes. The moral to this is simple and, I hope, somewhat inspiring story is this: you may not owe as much as the IRS says you do. For example, the IRS may not have properly or fully applied a prior payment. Or, you may have checked the wrong box or transposed numbers on a return (e.g. instead of correctly claiming a $2,124.12 deduction, you may have mistakenly claimed a $1,224.12 deduction).

  1. Trying to resolve a discrepancy with the IRS may not be the right move.

If there’s an error or discrepancy in any of your filings, then you may think the right move is to call the IRS and speak with an agent. Unfortunately, this may actually be one of the worst things that you can do.

It’s generally fine to do this if your matter is very straightforward — e.g. you forgot to check a certain box, or there is very clear evidence that the IRS has missed applying a prior payment. In such cases, while you might be on hold for a while and get bounced around a few times, the matter is likely to be resolved with minimal hassles or headaches.

However, if there is any degree of complexity or interpretation — i.e. the IRS is claiming that some of your deductions aren’t legitimate — then talking to the IRS is probably not a good move. You’re unlikely to speak with someone who has the knowledge and time to understand your matter, and more importantly, everything you say will be recorded and (here’s the very important part) may be used by IRS agents to launch an investigation, which could lead to an audit. Remember: the IRS is working on its behalf, not yours. No, they won’t lie. But they are under no obligation — and in fact, will not — help you make intelligent tax filing or tax planning decisions. And if you indicate that you may be doing something untoward, they will stay quiet and let you incriminate yourself.

The Bottom Line

If you owe money to the IRS — or if the IRS claims you owe money and your records don’t agree with this assessment — then the smartest and safest thing you can do is seek the advice of a tax attorney. Remember: your accountant, bookkeeper, “financial wizard of a next-door-neighbor” and anyone else can be subpoenaed to give evidence against you if the matter escalates to an audit or prosecution. However, all of your conversations and correspondence with a tax attorney is protected by attorney-client privilege.

And if you’re worried that hiring a tax attorney makes you “look guilty” in the eyes of the IRS: don’t buy into that myth, either. The IRS actually prefers working with attorneys, since the process is typically more efficient and much faster than dealing with individual taxpayers. There is also much less chance that an assessment will be appealed to the U.S. Tax Court, since the matter is likely to be resolved amicably.

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