The Internal Revenue Service (IRS) is an important agency. But, before the IRS Restructuring and Reform Act of 1998, the agency seemed to operate as if it was also a judge and jury. If the agency believed that a citizen owed money, that was it – they owed the money. The Restructuring and Reform Act changed that by requiring the agency to communicate with taxpayers. Moreover, there was due process if there is a dispute over unpaid taxes that includes a hearing. During the meeting, the taxpayer or their representative can explain the filer’s thinking and actions. If the agency rules that money is still due, the taxpayer must pay or face penalties that include garnished wages, a tax lien, a levy on bank accounts, home seizure, or other measures.
Four common options
Obviously, the above penalties are undesirable, so the taxpayer can explore payment options if they cannot immediately pay the claimed amount:
- Hardship program: They can apply for the IRS’s currently not collectible status if they cannot afford the tax bill after paying basic living expenses.
- Installments: The IRS does allow taxpayers to pay on monthly installments.
- Bankruptcy: Taxes burdens may be dischargeable by filing bankruptcy, which may reduce or eliminate state and federal tax burdens.
- Negotiate a deal: A tax attorney can represent clients at the hearing by preparing the client for common questions, and they can also answer the agent’s questions on behalf of the client. They may also work to reduce the amount by asking the IRS to provide documentation and confirm that it is accurate, delay payments or negotiate a new offer in compromise.