Thank So You Filed Your Tax Return With A Balance Due— Now What?

As the April 18, 2023, filing deadline approached, many taxpayers were caught off guard to learn their refunds were significantly less than in the past few years, or that they even owed additional taxes.  In large measure, this resulted from many of the pandemic-related credits expiring.

For those who found themselves owing an amount they could not pay, the question arises “what do we do now?”

To be sure, the IRS is one of the most (if not the most) powerful creditors in the country.  And while many are intimidated to the point of paralysis by the possibility of having an IRS employee show up at their door, in most cases they do not need to be.  The IRS will work with Taxpayers on ways to resolve their tax liabilities if the Taxpayers are willing to work with the IRS. 

Once the tax return is processed and the tax assessed, the IRS will usually send a series of five collection notices, generally spaced out about five weeks apart.  The language of each notice gets a little more forceful as you move along, and the final two will come by Certified Mail.  The final notice is important, as it grants important rights if the Taxpayer invokes them within 30 days of the date on the notice.  So, don’t avoid opening or getting mail from the IRS.  In most cases, the sooner you contact the IRS the better.

When dealing with the IRS as a creditor, there are several options potentially available, most of which depend on the Taxpayer’s financial situation:

  1. Installment Agreement-  an agreement to pay the IRS in equal monthly payments until the liability is paid in full, or the statute of limitation (10 years) expires.  Depending on the amount owed (above $50,000; or, in some instances $250,000), you may be able get an installment agreement without full disclosure of your finances.  But if you owe more than these thresholds, or cannot afford the minimum payment, you will need to provide full financial disclosure.
  2. Offer in Compromise- when a Taxpayer’s financial disclosures show they do not (and likely will not) be able to pay the full amount due, the IRS may compromise the liability for less than what is owed.  But this is not a one-size-fits-all resolution.  If you have equity in assets, or ability to pay the liability in full through monthly payments, you cannot “settle your tax debts for pennies on the dollar.”
  3. “Currently Not Collectible”- when the financial disclosures show a Taxpayer’s income is entirely consumed by expenses necessary for the health and welfare of their family or the production of income (and, therefore, they cannot afford to make a monthly payment), the IRS may place the Taxpayer in “currently not collectible status” and forego collection until the Taxpayer’s financial status improves. 
  4. Bankruptcy- contrary to popular belief, taxes can be discharged in bankruptcy, depending on the age and circumstances of the liability (generally, the due date of the tax return must be at least three years old, and the return was timely filed). 

In most instances, determining the best available option is specific to the individual Taxpayer’s financial circumstances.  So, be wary of anyone who suggests they can or will obtain any specific result without at least asking basic financial information.  It’s likely a scam.

If you owe back taxes to the IRS, contact one of the Denver-based attorneys at Anderson & Jahde to help you determine the best available option for you.

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