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Possible Solutions of What to Do If You, as a Taxpayer, Owe the IRS by: Suzanne Alexandra Ascher

Posted by attorney Suzanne Ascher

If you owe the Internal Revenue Service (IRS) outstanding taxes, it is vital to determine the proper course of action. The proper way for a taxpayer to tackle his IRS problems depends on the particular set of facts and circumstances of each taxpayer's unique situation.

It is not uncommon for taxpayers who have serious IRS problems to avoid the letters that come to them, unrrealistically hoping the problems will go away. Ignoring IRS letters can result in missing necessary deadlines which ultimately can result in seizure of property, i.e. wages or bank accounts. However, this can be avoided if the taxpayer addresses the correspondence he receives in the mail, is in compliance with his tax filing requirements, and seeks a solution to deal with payment of outstanding taxes, assuming a balance is owed. (Note: don't forget about penalties and interest also!)

Let's explore some possibilities:

1. Installment Agreement: is an arrangement with the IRS to pay past taxes in monthly installment payments over a period of time. The monthly installment amount can be determined based on the taxpayer's totl debt amount owed, the current financial situation of the taxpayer, and the statute of limitations on collection (the amount of time the IRS has to collect the tax).

2. Offer in Compromise (OIC): is a settlement with the IRS for taxpayers without the ability to fully repay their tax debt. An OIC allows a taxpayer to settle his tax liability for a smaller amount. In essence, the tax debt is being compromise through an offer to pay a smaller amount. The IRS reviews a taxpayer’s history, along with the current and future financial situation of the taxpayer, to decide whether to accept the OIC. An OIC it is a great way for some taxpayers of settling back taxes and starting over. After OIC acceptance, the taxpayer must be in compliance with both filing and payment obligations going forward in the future.

3. Currently Not Collectible (CNC): this is a status which stops IRS collection activity as a temporary measure. The IRS does not pursue collection activity from taxpayers during CNC status. The IRS has a statute of limitations upon which it can collect from the taxpayer and may reinstate collection activity while the statute of limitations on collection is open should the taxpayer's ability to pay the IRS improve or resume.

The above is a few tips for taxpayers to consider when deciding how to deal with their IRS problems.

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