How to Get Help from the IRS If You Owe Back Taxes

Owing back taxes to the IRS can be a scary situation. The interest and penalties can really add up, making the amount you owe grow bigger and bigger. But don’t panic! The IRS actually offers a lot of options to help taxpayers who owe back taxes get back on track.

In this article, we’ll walk through all the different ways you can get help from the IRS if you owe back taxes. We’ll look at payment plans, penalty abatement, offers in compromise, and more. Our goal is to give you a full understanding of your options so you can choose the best path forward.

First Steps

If you get a notice from the IRS saying you owe back taxes, the first thing to do is take a deep breath. Don’t ignore the notice – that will only make things worse. But also don’t panic. You have options.

The next step is to get a clear picture of what you owe. Call the IRS at 800-829-1040 and ask them to send you a tax transcript showing your account balance and the breakdown of tax, penalties, and interest. Review it carefully so you understand your total debt.

If you think the amount is wrong or you see errors, contact the IRS right away to get it corrected. Mistakes happen, so make sure your balance is accurate before proceeding.

Payment Plans

One of the most common options for owing back taxes is to set up a payment plan with the IRS. This allows you to pay off your tax debt in monthly installments over time. The IRS offers several different types of payment plans:

• Short-term payment plan – Pay off your taxes in 120 days or less. No setup fee and it’s easy to apply online.
• Long-term payment plan – Pay off your taxes in over 120 days. There is a setup fee and more financial analysis.
• Partial payment plan – Pay what you can afford based on your income and expenses. You must re-apply every 2 years.
• Delayed collection – Delay payment up to 1 year if you face a temporary hardship.

Payment plans can give you breathing room to pay back your taxes over time. Interest and penalties continue to accrue, but the late payment penalty is cut in half. To start the process, you’ll need to complete IRS Form 9465.

If you owe $50,000 or less, you can apply online for a short-term payment plan and get immediate approval. For larger balances or long-term plans, it takes 1-2 months to get approved after submitting your financial information.

Penalty Abatement

If penalties are making your balance due extra high, you may be able to get those penalties waived or abated by the IRS. The IRS is allowed to remove penalties for things like:

• Reasonable cause – You had a good reason for not paying on time.
• Statutory exceptions – Things like erroneous IRS advice or delays in resolving audits.
• Administrative waiver – The IRS decides it’s unfair to charge the penalty.

To request penalty abatement, you’ll need to submit IRS Form 843 explaining your reasonable cause. Supporting documentation is very helpful. If approved, you still owe the back taxes and interest, but the penalties are removed.

Offer in Compromise

For some taxpayers, even payment plans or penalty relief isn’t enough. If you owe a very large amount compared to your income and assets, you may be able to settle your tax debt for less than the full amount through an offer in compromise.

With an offer in compromise, the IRS looks at how much they could reasonably collect from you versus forgiving part of your tax debt. It requires extensive financial disclosure and usually a non-refundable $205 application fee. The IRS will verify your ability to pay before accepting an offer.

If accepted, your tax debt is considered fully paid even though you only paid a percentage of what you owed. However, the IRS can revoke the offer and reinstate the full debt if your circumstances improve significantly in the next 5 years.

Bankruptcy

As a last resort, declaring bankruptcy can discharge (eliminate) your tax debt, but only if the taxes are from more than 3 years ago. Bankruptcy also damages your credit badly. Consult a bankruptcy attorney before considering this nuclear option.

Avoiding Scams

When you owe back taxes, you need to be extra vigilant against scams. Some unethical companies claim they can settle your tax debt for pennies on the dollar. The Federal Trade Commission (FTC) warns that many of these offers are too good to be true.

Here are some red flags to watch out for:

• Requests for upfront fees before providing any services
• Guarantees they can eliminate your tax debt or stop collection calls
• Promises of special access to the IRS not available to taxpayers
• Aggressive sales tactics like constant phone calls
• Lack of physical office location

Before hiring any tax relief company, research them thoroughly first. Check complaints with the FTC, state attorneys general, and Better Business Bureau. Ask for references from past clients. Get promises in writing. Never let a company pressure you into signing anything on the spot.

For most taxpayers, the safest route is working directly with the IRS through their various relief programs. The IRS deals with millions of taxpayers owing back taxes every year. They have many reasonable payment options available. You can even get penalties waived if you have a good reason you couldn’t pay on time.

If you need help navigating the IRS system, check with a Low Income Taxpayer Clinic or the Taxpayer Advocate Service. They provide assistance at low or no cost. Your state’s tax agency may also have resources to help.

Dealing with back taxes is tough, but avoid shady offers that seem too good to be true. Be proactive, but protect yourself from scams along the way. Relief is available directly from the IRS if you take the right steps.