Top 5 Things to Know When You Owe the IRS

Dealing with the IRS can be confusing and stressful, and you aren’t alone if you feel confused attempting to navigate the inner workings of this government agency. Whether you owe a lot of money or a little, here are the top 5 things you should know when you owe the IRS straight from our Revermann Law experts.


#1: Communicate!

While taxes can seem intimidating and scary, you will create a worse situation for yourself if you ignore the IRS. If you receive an IRS letter, follow the instructions on the letter by calling the number or writing to the address that’s at the top of the letter. You should do this even if you are not able to pay the amount of tax the IRS says you owe. The IRS gives you deadlines to respond and if you don’t, the IRS can levy your bank account, garnish your wages, or take other steps that will negatively affect you financially. So, please don’t bury your head in the sand with the IRS as your problems will only continue to grow.

#2: Statute of Limitations

Typically, the IRS has 10 years to collect taxes due from the time the taxes are assessed, which is, in most cases, when you file your tax return. This means that if the IRS doesn’t get paid before the end of the time to collect, your tax bill goes away. However, when you do things such as file an amended return, file bankruptcy, submit an offer in compromise, or request an appeal, this will extend the 10-year clock. If the IRS sees that the statute is nearing its end, it may more aggressively try to collect the taxes from you. Remember that if you haven’t filed a return, then the statute never runs. So, remember to file your tax returns on time to get the statute running.

Don’t bury your head in the sand with the IRS as your problems will only continue to grow!

#3: Settling Your Tax Debt

You may hear from various tax relief programs that you can settle your taxes for pennies on the dollar. As with many things, if it sounds too good to be true, it probably is. In general, this is very misleading and it is highly unlikely to get this kind of settlement with the IRS. But, it is definitely possible to reach an agreement with the IRS to compromise your taxes when the IRS sees that you will likely never be able to pay your entire tax bill. You must show that what you own plus your monthly income after paying your expenses are not enough to pay the amount due. There is a formal application that needs to be filed, along with a 20% down payment and filing fee. The process generally takes approximately six months. During this time, the IRS cannot continue collection action against you; however, it does extend the statute of limitations.

If you do not qualify for an offer in compromise, you may have other options. Try talking to the IRS about making installment payments through the IRS Fresh Start Program or other arrangement. Alternatively, you could try showing the IRS that you have a hardship and should be considered currently not collectible, which means you can’t make any payments at the present time because of your financial circumstances. In this case, your interest and penalties will continue to add up and the tax liability still exists.

#4: Pay Your Current Taxes

When you owe taxes for earlier years, it can be tempting to take any available money and pay it towards those old years. This is especially true as you see interest and penalties adding up. However, it is very important that you make sure you’re up-to-date on any current year tax payments. If you are an employee, your tax withholdings from your paychecks should cover your current year taxes. If you own your own business, you need to be making estimated payments on your current year income. When you don’t keep up on your tax payments, two things happen:

  • The IRS cannot enter into agreements with you to resolve your past year tax debt if you’re not staying current with your taxes
  • You get behind and create another year of problems for yourself. If you’re able to stop the bleeding, you should make every effort to do so.

#5: Liens

A tax lien happens whenever someone has been notified that he/she owes the IRS money. The IRS can file a Notice of Federal Tax Lien, which is a public notice to creditors that you owe taxes. This will go on your credit report, come up if you try to get a loan, be seen by your employer if it does a credit search, and affect a sale of your house.

You can get the Notice of Tax Lien released if you: 1) Pay the amount due in full; 2) The statute of limitations has ended; 3) You enter complete your responsibilities under an offer in compromise; or 4) You are bonded for the tax amount owed through an IRS program.

You can also get the Notice withdrawn if you: 1) Enter into an installment arrangement with the IRS under certain circumstances, including, among other things, having a direct debit payment set up; 2) The IRS has filed the Notice incorrectly; and 3) Convince the IRS that it would be in everyone’s (including the IRS) best interests (example: You can prove you would be able to pay off the taxes more quickly if the Notice wasn’t filed).

You may also get the Notice discharged, which a temporary solution, that allows you to lift the lien in order to get financing to pay off your debt. There is a formal application to complete to request a discharge.


If you’re feeling overwhelmed and like you don’t want to tackle your tax debt alone, we can help. When you work with us, we’ll treat you with respect, answer all of your questions and make sure you understand every step of the process in plain English. We’ll help clarify what the problem is, your options for resolving it, and how we can help. Start a conversation with us.

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