The First Steps to Resolving IRS Back Taxes

Posted on May 22, 2023

The First Steps to Resolving IRS Back Taxes

Many times, when taxpayers first receive information about being in tax debt, they believe it difficult if not impossible to resolve. Moreover, communicating with the IRS to resolve back taxes seems like a tough task, especially if you are looking for tax debt reduction or a postponement in paying.

If you learn about your tax debt through an IRS notice, do not panic. The IRS sends multiple notices regarding tax debt and allows the recipient time to resolve the debt. At the same time, you must begin exploring ways to resolve your tax debt as soon as possible.

Make Payment Estimation to Resolve IRS Back Taxes

You should first consider how much of your tax debt you can pay. If you can pay the full amount of tax debt, then you should contact the IRS without consulting a tax specialist. If you cannot pay your entire tax debt in a single payment, then you should consider applying for an Installment Agreement. Under an Installment Agreement, you can pay your tax bill in fixed monthly installments.

For tax debt reduction, you must first consult and/or hire a tax professional or a tax service because it requires careful preparation of the case and negotiation with the IRS. IRS Payment plans such as Offer in Compromise and Partial Payment Installment Agreement can be used to achieve tax debt reduction.

If you have no ability to pay any amount of back taxes, you can consider applying for Currently Not Collectible (CNC). If you qualify for it, you will be assigned CNC status and the IRS will not be able to collect any amount of tax debt from you until there is improvement in your financial situation.

Consider IRS Penalty and Interest on Back Taxes

When resolving back taxes, keep in mind the amount you will need to pay to the IRS in penalties and interest along with the original tax debt amount owed. Usually, the IRS charges a 0.5 percent penalty each month on the total tax debt amount, but it is best to know exactly how much in penalty the IRS is charging in your tax case. The maximum amount of penalty cannot exceed 25 percent per month.

The IRS continues to charge both penalties and interest on the tax debt amount that remains to be paid even after you have qualified for a payment plan and have begun to make payments. Therefore, the more you pay and the earlier you pay back the entire amount of tax debt, the more you will save on penalties and interest.

Responding to the IRS

If you cannot pay your entire tax debt, it is advisable to first consult a tax specialist or use the free consultation service of a tax service to explore suitable methods of resolution before contacting the IRS. It is important that you begin resolution efforts early to avoid paying more in penalty and interest, and to avoid harsh IRS collection actions.

Use outside help if you need a resolution of IRS back taxes that involves reduction in tax debt, reduction/forgiveness of penalty, or postponement of payment. Our ratings and reviews of the top tax resolution services may help you in your search for a suitable tax help.