It’s not good news — the IRS is hiring again, with a focus on audits and collections. Something else: it appears that a big focus will be on business owners.
So if you have been avoiding IRS notices about tax debt, then you may want to think about taking steps to resolve things. If not, your business and personal life could get a lot more complicated and stressful. After all, the IRS has tremendous powers, such as to seize your assets.
OK then, what are some of the steps you can take with IRS tax debt? Well, let’s take a look:
1. Know where you stand.
Review all your IRS letters and tax returns (I recently wrote a post for Entrepreneur on how to respond to notices). As should be no surprise, the agency may have made mistakes — which means that you could ultimately reduce some of your debt. Although, it’s usually a good move to get assistance from a tax professional. The potential savings you could gin up may be much more than the fee you pay.
2. Negotiate your penalties.
Penalties can quickly spiral out of control. This is why you need to act swiftly when dealing with your IRS debt.
But you can also negotiate with the agency to lower or even eliminate your penalties, such as if you can show reasonable cause. Examples of this include serious illness, harsh financial circumstances or the destruction of your home or business. The IRS also has a program that provides relief for those who have gotten in trouble with the agency for the first time. In a recent post for Entrepreneur, I go through some of the actions you can take on resolving penalties.
And even if the IRS rejects your request, you still have recourse, such as for an appeal.
3. Payment plan.
Once you know how much you owe, you can put together a plan. A common approach is to setup an installment agreement, which can be as long as six years (payments must be made on a monthly basis and interest/penalties continue to acrue). Keep in mind that this type of arrangmet will stop actions like liens and levies.
If you owe $50,000 or less, the process is likely to be straightforward — and you should be able to do it online. But you will need to be in compliance with the IRS, such as having made your tax filings, deposits and withholdings.
Although, a big mistake many people make is to actually violate the agreement. If so, your situation will likely get even worse. In other words, before signing any agreement with the IRS, make sure you know the terms.
4. Other options.
You’ve seen the TV commercials where the spokesperson makes the claim that you can settle your IRS debt at “pennies on the dollar.” Sounds too good to be true? Well, often this is indeed the case.
Yet the IRs does have something called an offer in compromise or OIC, which allows you to pay off your debt at a discount. The process — which involves disclosing extensive financial information with forms 656 and 433 — will determine the amount the IRS believes you can live on without causing financial hardship.
Oh, and unfortunately the IRS rejects many submissions. So because of this, it’s a good idea to get the help of a tax professional, who should know how to fill out the paperwork as well as navigate the IRS bureaucracy.