Owing money to the IRS can be a daunting prospect when you don’t know the procedure or how to handle the debt. The consequences for neglecting to pay a debt or respond to the IRS can be very serious, so knowing what to do when you owe money is crucial. If you owe money to the IRS, contact Don Bell Law to help you make sure you are paying on time and on the best schedule for your finances.
When you owe taxes to the IRS, you should know when you file, because your return will show a balance. This balance is your estimated tax owed, or estimated refund. If you are showing a refund or a balance of zero, you will not need to take further action with the IRS. If you are showing that you have a balance owed to the IRS, you can pay the estimated balance right away. The IRS has a voucher that you can file and enclose payment based on your estimated tax balance. Any overpayment or miscalculation will be adjusted and returned to you. The IRS also offers arrangements for those who cannot afford to pay the full balance right away. When you request the arrangement, you will state your preferred payment agreement that works for you financially. You can enclose your first payment in the request. Usually, the IRS will accept any reasonable payment plan requests. However, there is the possibility that they will reorganize your request for higher payment into a payment arrangement that they think is more suitable.
If you do not pay your estimated tax right away, you should receive notification of money owed through a letter in the mail. The longer you go without paying the tax money you owe, the more serious the situation will become. After they’ve notified you of your balance, you can make the payment arrangement previously described, or pay the balance in full.
If the balance is large, and you have the ability to pay it outright, you could try to make an offer in compromise, which works like a settlement. The IRS will generally approve an offer in compromise when the amount offered is the most the taxpayer can afford to pay within a reasonable period of time.
If you are unsure if the balance is correct, there are a few steps you can take. This could be the case for a few reasons. You may have filed erroneously and caused an inaccurate balance, or failed to claim deductions you were entitled to. If this is the case, you can file an amended return to adjust the error.
If your problem is more involved than that, you can schedule a Due Process Collection Hearing. The hearing will determine whether you owe the amount requested, and will give you the opportunity to provide any additional proof that was not submitted when the original taxes were filed. This is often done if your refund was adjusted by the IRS, and you disagree with the adjustment.
You may also need to set up a hearing if you’ve recently declared bankruptcy, to show the IRS that paying the balance would cause you financial hardship. If the statute of limitations for the IRS to seize your property has expired, you may also require a hearing to stop the collection process. This statute of limitations is ten years, and if you have property or income seized after ten years, or receive a levy, you may be able to fight the balance even if the original amount owed was valid.
Never ignore a bill from the IRS. Ignoring a balance owed to the IRS for extended periods of time can result in a tax lien or levy on your property. Prior to a lien or levy, you will receive a 30 day notice, as a final warning to set up a payment plan, or to take other actions discussed above. A lien does not in and of itself seize your property, however, if you are to sell your property the IRS can collect the funds you sold the property for and apply it to your debt. Once the debt is settled, the lien is lifted. The IRS could also issue a levy, which allows the IRS to seize your assets to settle your tax balance. The IRS could begin taking your refund for following years, garnish your wages, or even take money from your bank account. When the IRS seizes a bank account, the bank has 21 days to hold the funds, before releasing them to the IRS. This allows the account to gain any interest that may apply toward the balance after the 21 days. Further debt could cause you to lose investments, IRAs, inheritances, social security, pension, and insurance policies.
If the Internal Revenue Service has already begun to take your property or levy your income, you should still take action. Once the balance is paid, the levy will be released and the IRS will cease collection. There are many ways to release a tax levy, but in order to help you figure out the next steps to settling or absolving your debt with the IRS, professionals like Don Bell Law can advise you and in some cases represent you to ensure that you take action in the way that works for you financially.
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