Somehow you found yourself behind on taxes and in debt to the IRS. It makes your stomach turn thinking about it. You need tax debt relief… and quick.

You may be tempted to put it off until you have the mental and financial capacity to deal with it. That’s a dangerous path to walk. You know you’ll end up ignoring it until the next notice shows up with even worse consequences; more fees and penalties, and even jail time is on the table in extreme cases. That’s not the answer.

Paying them everything they’re asking for immediately may not be the best move for you either. If it’s a small amount from just the previous year and it was a simple tax return, then yes, pay them and be done with it. But if it’s been years and you owe a lot. There may be other options that can minimize what you owe. They’re worth consulting with an accountant about before making any decisions. 

We’ll walk you through the options available to you for true tax debt relief.

Immediate Steps to Take Control

Take these steps to show the IRS that you are acting in good faith to be compliant. It doesn’t mean you’re just going to give in, but it shows you’re not ignoring them either. That goes a long way and will make any further steps you take that much easier.

• Don’t ignore the notices: The IRS keeps track of every balance. Pretending the problem isn’t there does not stop the meter from running on interest and penalties.
• Verify the balance: You have the right to challenge the IRS if you believe they have made a mistake. Not every notice is accurate, and if there is a calculation error, you should fight for the correct number.
• Separate your finances: Ensure your personal and business accounts are separate. Mixing them makes it difficult to manage your business and can put your potential tax deductions at risk.
• Analyze your cash flow: Do not guess at your numbers. You need an honest snapshot of your current cash, expected revenue for the next 30 to 60 days, and your non-negotiable expenses like payroll and rent. This will give you an idea of how much you have available to pay down the debt.
• Trim non-essential costs: Temporarily cut subscriptions or extra spending until your cash flow stabilizes.
• Prioritize business operations: If paying the IRS in full threatens your ability to make payroll or keep your business running, you must prioritize staying operational.
• Make partial payments: Even if you cannot pay the full amount, pay what you can. Making a partial payment reduces the balance the IRS uses to calculate future penalties and interest and shows them you’re trying to be compliant.

The IRS Resolution Process

No matter the situation you’re in, we highly recommend consulting with an accountant. At the very least, they will be able to interpret the IRS notices for you so you know exactly what they’re wanting. 

But if you find it all too overwhelming, this is the typical process your accountant will go through to take you through the IRS resolution process to seek tax debt relief on your behalf.

1. Establishing Formal Representation

The first step is to file a Power of Attorney (POA) with the IRS. This creates a firewall between you and them. Once filed, the IRS is legally required to contact your representative instead of harassing you. If they reach out, your only response should be: “Please contact my representative.”

2. Reaching Tax Compliance

Before the IRS will negotiate a settlement, they generally require you to be a compliant taxpayer. This means: 

• Ensure all past-due income tax returns are prepared and filed.
• Stay current on all quarterly estimated income tax payments.
• Keep your payroll tax withholdings at the correct levels.

3. Developing a Strategic Plan

A tax professional will work with you to develop a phased strategy for your specific situation. They will help gather necessary records to complete your tax preparations and get them filed quickly. This is a collaborative effort. Your timely follow-through on document requests is vital to keep the process moving forward. 

Once you’re compliant, you can propose a resolution strategy. Depending on your financial reality, your tax professional may explore these two primary options:

• Offer in Compromise (OIC): This is a formal request to settle your tax debt for less than the total amount owed. You must prove to the IRS that you don’t have the financial ability to pay the full debt based on your assets, income, and future earning potential. If you qualify, this has the potential to significantly reduce your back taxes liability.
• Penalty Abatement: Even if you cannot reduce the base tax owed, you may be able to reduce or remove the interest and penalties attached to it. This requires proving reasonable cause for why the taxes weren’t paid on time (such as a major business disruption or personal emergency). You may also qualify for First-Time Abatement if you have a clean compliance history.

4. Negotiation Phase

Once you’re compliant, the negotiation phase begins. You and your tax professional will propose a plan to the IRS. It’s rare for a proposal to be accepted on the first attempt. Your accountant will continue to:

• Provide requested information to the IRS
• Respond to IRS counter-proposals
• Persistently follow up until a resolution is reached

5. Finalizing the Agreement

Once the back-and-forth is complete, the IRS will send an official resolution. Your accountant will review it to ensure it matches the agreed-upon terms. If the resolution is not acceptable, your professional will insist that it be changed. Once finalized, you’ll meet the terms you agreed to. They will advise you on how to move forward and avoid future tax issues.

The Path Forward

Don’t let a small amount of back taxes, or even a large amount of tax debt, define the future of your business. 

The IRS relies on fear and silence to collect more than you legally owe. By getting compliant, understanding your resolution options, and having a professional represent your interests, you can get full tax debt relief and reclaim your power.

Ready to stop the stress and resolve your tax debt? Don’t wait for the next notice to arrive. Schedule a call with our tax resolution experts.