If you owe back taxes, it’s important to act quickly and set up a plan to repay them.
“The most important thing a taxpayer can do to help reduce penalties and expenses associated with an IRS notice is to take action right away,” Michael Raanan, enrolled agent and president of Landmark Tax Group, says.
But corresponding with the IRS can be confusing and chaotic, and taxpayers increasingly report erroneous notices, unanswered phone calls and IRS processing delays.
Follow these steps if you receive any sort of correspondence from the IRS regarding back taxes, and take advantage of available resources to pay them off.
[READ: What Happens if You Don’t Pay Your Taxes?]
How Do I Know If I Owe the IRS?
There are several ways to discover whether you owe back taxes, including:
— You receive a notice from the IRS via mail. The IRS will let you know if you owe back taxes via a mailed notice. To avoid scammers, remember that the agency will never email, text, contact you initially via phone or reach out via social media.
— Log in to your tax account on IRS.gov.Once you log in, you can access your tax records, make or view payments, see the amount you owe and view a breakdown of your liability by tax year.
— File or review tax returns.Determining if you owe back taxes may be as simple as filing or amending a previous year’s tax return.
— Contact the IRS at 800-829-1040. You can also call the IRS to get more information on your outstanding tax bill. Keep in mind it may be difficult to reach a real person, particularly during peak tax season months.
Determining how much you owe and why has been a challenge for some taxpayers due to the IRS backlog that consists of millions of unprocessed returns that accumulated during the COVID-19 pandemic. But the backlog has been shrinking since the IRS hired thousands of new employees with the money it received from the Inflation Reduction Act of 2022.
“The simple answer is to respond to notices quickly,” Mitchell Freedman, certified public accountant and president and founder of M Freedman & Co. Inc., says.
“Unfortunately, due to staffing issues sometimes the IRS computers will generate follow-up notices because nobody has addressed the taxpayers’ responses yet, which are sitting in a pile somewhere,” he says.
Most important, never ignore a notice from the IRS. Tax professionals say it may be wise to double-check how much you owe using a couple of the methods above to ensure you have the correct figure, then take action.
[READ: Should You Hire a Tax Professional This Year?]
How Long Can You Owe the IRS?
Typically, the IRS has 10 years from the date of its first notification to complete collecting back taxes and three years from your filing date (including extensions) to notify you regarding taxes you owe.
“The 10-year clock starts on the date the tax was actually ‘assessed,’ or put on the books,'” Raanan says. “But the statute date can get extended due to activity on an account, such as a bankruptcy, appeal, filing an offer in compromise and more.”
When a tax bill goes unpaid over a long period of time, the IRS may begin collecting through enforcement actions, such as issuing a bank levy or filing a tax lien.
Ways to Pay Off Your Tax Bill
If you’re unable to pay the full balance of your tax liability right away, you have options.
“If you feel like you could put it on your credit card and then pay it off in the required 30-day time period, that’s one route,” Mark Jaeger, vice president of tax operations at TaxAct, says.
“The IRS does offer different types of installment agreements,” he says, noting that interest rates on these plans are around 7%, “which is a lot better than a credit card rate of 18% to 25%.”
Consider the following ways to satisfy your debt with the IRS:
— Get on an installment plan. You can apply to repay your tax bill in monthly payments. While you do, interest will continue to accrue.
— Request an offer in compromise. This allows you to settle your tax debt for less than the full amount you owe. Filing an application is part of the process.
— File and pay what you can.The failure-to-file penalty is higher than the failure-to-pay penalty, so it makes sense to file your taxes and pay whatever you can. After you do, work with the IRS to get on a payment plan or talk to a tax professional about your options.
— Request a hardship determination. If the IRS initiated a bank levy and it’s causing you economic hardship, you may be able to get the levy released.
[Related:IRS Offer in Compromise: Everything You Need to Know]
Regardless of which repayment method you choose, it’s important to establish some sort of plan to prevent the IRS from taking or continuing enforcement action.
“Despite the perception of the IRS, resolving IRS back taxes is actually easier than it may appear,” Raanan says.
“For back taxes, most taxpayers can either set up an affordable payment plan or receive a financial hardship approval from the IRS, which puts their back taxes aside until their finances improve. Other taxpayers may qualify for a penalty removal, tax settlement or another type of resolution,” he adds.
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Do You Owe the IRS? How to Find Out originally appeared on usnews.com
Update 04/24/23: This story was published at an earlier date and has been updated with new information.
