What To Know About Tax Debt

Did you know that many bankruptcy filings are brought on by debt that was unintentionally collected? We aren’t talking about simply racking up charges on credit cards carelessly; but referring to debt from unexpected medical bills, loss of a job and even because of mistakes in a previous tax return.  If a previous tax return was inaccurate or incomplete, you may owe the IRS money. The IRS does not take tax debts lightly, and unpaid taxes can cause serious financial problems for the unknowing taxpayer.

Back Taxes

Back taxes are unpaid taxes that can be subject to interest rate charges and delinquency fees if they continue to go unpaid. Typically, back taxes are accidentally accumulated through inaccurate or incomplete tax returns. Many people may go years without knowing their previous returns were incorrect and required adjustment. In such cases, by the time they are contacted by the IRS they may owe significantly more money than the actual unpaid total. In other cases, many people knowingly withhold payment from the IRS because they cannot afford to pay their tax liabilities. The taxpayer can count on one thing: the IRS will collect their money.

Unfortunately, tax debt is not eligible for typical debt settlement or negotiation. However, the IRS does offer some payment plans and debt negotiation tools to help taxpayers repay their tax debts in a way they can afford. Taxpayers have the option of requesting an installment plan, which allows for multiple payments over time. Typically, the taxpayer will be granted up to 24 months to repay their tax liabilities. Those that cannot afford to repay the full tax liability may be able to request an offer in compromise, in which the IRS agrees to accept an amount less than the total amount owed. The taxpayer will be granted a specified period of time to repay this “settled” amount.

Prevention Tips

• Always review your tax return for incomplete or inaccurate information.
• If you need to make changes or additions, call the IRS right away.
• Have a certified tax professional review your return to ensure it is complete and correct.
• If you cannot pay your tax liabilities, contact the IRS to request payment assistance.
• Seek help from a qualified tax attorney to help settle your back taxes, stay away from companies that offer to settle your tax debts for “pennies on the dollar”.