The IRS has a relatively robust set of options available for taxpayers who owe back taxes but are unable to pay in full.  These options range from payment plans to tax settlements that can drastically reduce what you owe.  If you follow the right steps, you can reach a resolution with the IRS on your back taxes, stop or prevent IRS levies and garnishments, and move on with your life.

The first step for any taxpayer with unresolved back taxes is to make sure you are 100% compliant with your current taxes.  That means ensuing at least the last 6 years of tax returns are on file (assuming you have a filing requirement) and you have paid in sufficient taxes for the current year.  This typically means ensuring you have sufficient federal income taxes withheld from your wages if you are a W-2 employee, or paying in sufficient quarterly estimated taxes if you are self-employed or a 1099 independent contractor. 

Next, you need to determine your monthly disposable income and equity in assets.  This is done by completing a form 433-A or 433-F.  Each of these forms walks you through how to list your current income sources, current monthly expenses, and calculate the equity in your assets.  

After we know your current balance due, your equity in assets, and your monthly disposable income, we can mathematically determine the best available IRS resolution program.  If your current monthly disposable income stretched over the months remaining on your collection statute of limitations and equity in assets are less than your total IRS balance– it proves an inability to pay which could help you qualify for an IRS tax settlement or “currently not collectible” hardship status.  If your financials do show an ability to pay, then IRS will demand some type of installment agreement—either one based on your monthly disposable income, or one based on the number of months remaining on your collection statute of limitations.

Remember too that requesting certain types of resolutions could trigger IRS to file a federal tax lien to protect the government’s interest.  If a tax lien would affect your ability to support yourself (such as if you have a government security clearance), then you need to carefully evaluate your options before requesting a resolution with IRS. 

At Urban Tax Law, our first step in any tax debt resolution case is to file a power of attorney and take over as point of contact with the IRS—so you never have to talk to them.  Next, we pull your IRS transcripts to check for compliance and determine the exact cause of your tax balances.  Then we help complete the financial forms needed to determine your monthly disposable income and equity in assets.  We present you with your resolution options, decide on a course of action, and then negotiate that resolution with the IRS.  Lastly, we handle follow-ups with the IRS until your resolution is secured.  If you owe the IRS and need guidance, or if you are receiving IRS collections letters and need help setting up a resolution, then schedule a consultation and let’s talk about your case.