Tax debt that is ignored does not go away. Knowing what to do when the Internal Revenue Service (IRS) reaches out about your personal or professional tax liability is important.
Whether a business owner or an individual, the IRS will not ignore your debt forever. As long as you owe, your tax liability will likely accrue penalties and additional interest that is compounded daily on the entire amount. If you receive a Collection Notice from the IRS—your response is required. Consider these points for addressing the issue:
- The Notice of taxes owing from the IRS is the document that initiates the collection process. In the past, some taxpayers changed their address to avoid collection or threw away the Notice when it arrived. Ignoring the Notice is the most expeditious way to have your assets seized or your business disrupted.
- Review the Notice and the instructions. If you disagree with the tax debt, make use of the instructions in the letter to challenge the accuracy or other points of the Notice.
- When you legitimately owe the taxes claimed, consider the means by which you can pay the debt. If you can afford it, pay the debt in full. If not, consider a bank loan, personal loan from a family or friend, use of a credit card, or a sale of assets to address the amount owed. The interest you pay on these modalities is probably less than what the IRS is charging on the amount due.
- If you think that selling property to pay your debt is going too far—remember that the IRS will do the same thing when it uses a levy to satisfy your debt. A levy is an action, not a document, and it entitles the IRS to seize and sell your real property, business assets, and valuable tangible goods. The IRS can seize your bank and retirement accounts, and garnish your wages among other assets. The agency can also file a federal tax lien that notifies your creditors of your debt and may affect your ability to gain and use business or personal credit.
- Barring your own payment plan, you can work with the IRS to enter a short-term payment plan (giving you up to 180 days to pay the debt), an installment agreement, or consider an Offer in Compromise. The IRS can also delay collection action in certain circumstances, but as the agency notes, a payment plan, or a delay in collection, “does not mean the debt goes away.”
For business owners with considerable tax debt, it is a good idea to speak with a tax attorney about your optimal short and long-term strategies for working out the debt with the IRS. The anxiety around an IRS collection process can be relentless—if you receive a Notice of collection—get the guidance you need.
Trusted tax lawyers deliver strategic guidance on IRS matters to domestic and international clients
From offices in Chicago and Cleveland, Robert J. Fedor Esq. LLC works with clients challenged by tax litigation, criminal tax allegations, and offshore tax inquiries. When you need experienced representation on criminal tax matters, call us at 440-250-9709 or contact us online.
