Taxation & Estate Planning

How to Handle IRS Collections

By Darrin Mish

The very first step of the IRS collections process starts when you file your tax return without including the amount due yet. It will be the IRS who determines your amount due, which will be shown in the bill that they will initially send you. This first bill will simply state the explanations behind your tax due and the need for you to make a full payment. Another notice, this time it will state applicable charges, will be sent to you if you do not pay attention to the first bill. Continuing to ignore what the IRS sends you would lead to the receipt of notices that are more threatening in nature. These notices are sent in order and adhere to a specific format. You can actually look these up from the IRS to learn more details about them and know what each actually means. The bottom line is, if you get these letters, you clearly have issues with the IRS that need to be dealt with immediately

If you believe that the IRS committed errors in the calculation of your taxes, you can send them a letter or even make a phone call and request for a discussion of your bill. They will be more than willing to grant this request and make the necessary corrections should it be proven that they incurred some mistakes. For instance, if you already paid the bill and they continue to send out notices, you simply need to give them proof of payment such as copies of a canceled check. Just ensure that you never send any original documents, so you will always have support data on your IRS payments.

Certain payment options are also available in instances when you cannot afford to pay for the full amount of your taxes. You may request for an arrangement of an installment payment plan. This payment plan has three implications: you pay for your taxes over a longer period, you incur the applicable fees for the unpaid balance, and you are penalized until you have completely settled your dues.

If you really find it hard  to pay even a partial amount, options are still available. You may request that the IRS put off their collection efforts for a certain period. This is when you will be considered currently not collective. The negative part of this option though, is that you still incur penalties that will most likely accrue, ultimately making your IRS problems compound.

An often sought after solution is an OIC, or Offer In Compromise. When given, this allows you to pay only a percentage of the total amount due, and the rest of the debt is forgiven. Although statistically you are likely to be denied in your application for an Offer In Compromise, submitting such request will be worth the risk as this would effectively end your IRS problem, at least until the succeeding year.

In a number of instances, all you really need to do is simply contact your nearest IRS office to settle your IRS tax issues. Some incidents, however, require that you employ the services of a professional tax attorney for advice on IRS collections methods. Even though you are in debt, you still have the right to be treated fairly and in a just manner. Just be prudent in responding to the notices that the IRS sends you. Otherwise, they will resort to enforced collections process, which is much more invasive than the usual notices you will receive in the mail.

Full post as published by IRS Problem Solver Blog on August 26, 2009 (boomark / email).