You can either owe the Internal Revenue Service money from the current tax year or from a past tax year. First, we’ll talk about how you can know if you owe the IRS money for the current filing year.
After doing your taxes, or having your taxes prepared by a professional, you’ll see that you either owe money to the IRS or that you’ll be getting a tax refund. If after your tax preparation you find that you do owe, but weren’t expecting it, this could be due to an error, changes in the tax code, changes in your income, and changes in your deduction options, along with a long list of other possibilities.
If you find that you owe more on your state or federal tax return than you thought you would, the first thing you should do is check to make sure your tax return is free of errors. For example, did you accidentally input the same income twice? Did you input an incorrect filing status? Or did you forget a deduction you normally claim? If you owe the IRS money but weren’t expecting to, it’s crucial to double check your return for these types of errors.
However, you might find that you owe the IRS money even with an error-free return. New life circumstances and changes in federal tax law can affect your tax liability. Things like inheriting money, marriage, divorce, a new job, new self-employment income taxes, and deaths can cause you to owe more money to the IRS at tax time.
If you owe the IRS money from previous years, you’ll probably receive a notice of your amount due in the mail. But if you didn’t receive a notice in the mail and are still wondering if you owe the IRS money, you can find out by contacting the IRS.
You can ask the IRS if you have a tax balance from any previous filing years in person or over the phone. If you’d like to ask in person, look up the location of nearby IRS offices. If you’d like to ask over the phone, you can call the IRS using the number on their website, IRS.gov. Either way, you’ll need to have some information ready before you talk to the IRS. Make sure you have your Social Security number and any relevant tax return information ready before contacting the IRS.
Another option to determine whether you have a past due tax balance is to create an IRS online account, then view your tax account through the IRS’s website. There, you’ll be able to view your account balance and any payoff amounts.
If you owe the IRS money, it’s always best to pay your full balance before Tax Day (usually April 15th) on the year you owe. If you can pay on time, you should do so to avoid being paying late fees. There are a number of ways you can pay the IRS, including electronically on IRS.gov (either by direct pay or by credit card), through the IRS mobile app, and through sending a check in the mail.
If you owe the IRS money but can’t pay immediately, you’ll be subject to tax penalties, which will be added to your tax balance until it’s paid in full. However, if you can’t pay in the full amount by the filing deadline, there are a number of different payment options for resolving your tax bill, which we’ll talk about in our next section.
If you can’t pay your tax debt right away but can pay within 120 days, you can consider trying to get a short-term extension. You may be able to get this extension by through the IRS’s Online Payment Agreement tool or by calling the IRS and requesting an extension.
If you do get a short-term extension, you’ll receive up to 120 extra days to pay your tax debt in full. While you’ll have extra time to pay, know that you will still have to pay any late penalties that accrue during this time.
If you can’t pay in full immediately or within 120 days, you can consider requesting an installment agreement. Installment agreements are monthly payments that will be applied to your tax debt until it’s paid in full. To get an installment agreement, you’ll need to complete an Installment Agreement Request, then set up a way to pay the IRS each month. The IRS offers a number of different ways to pay each month, including through direct debit, payroll deduction, credit card, and by check.
Few people qualify for an offer in compromise but, if you do, it can be enormously helpful in settling your tax debt. An offer in compromise is an IRS option for those in a strained financial situation who can’t pay their full tax debt without undue hardship. If you request an offer in compromise through the proper IRS form and have your request approved, the IRS will agree to allow you to pay less than your full balance to settle your debt.
It is challenging to get a request for an offer in compromise approved. If you feel that you qualify, you can apply on your own or seek the help of a tax professional to increase your chances of approval.
If you fail to pay your tax balance on time, the IRS will send you regular notices of your outstanding balance, which will include interest charges. If you ignore these notices, the IRS may send you a Final Notice of Intent to Levy.
A tax levy is a late stage action taken by the IRS. If you have ignored IRS notices about an outstanding tax balance, they may decide to proceed with a levy. A tax levy is an IRS action in which they seize assets directly to recoup taxes owed. They may take money directly from your bank account, garnish your wages, or even seize properties, such as a house you own.
Tax levies are undesirable for many reasons. Tax levies are incredibly stressful and can be devastating both emotionally and financially. If you receive a Final Notice of Intent to Levy, you should immediately contact the IRS to work out a tax payment plan or contact a tax resolution expert to work out a plan on your behalf. After receiving a Final Notice of Intent to Levy, you have only 30 days to resolve your tax situation before the IRS can take action.
The IRS Statutory Notice of Deficiency (CP3219A) is a notice in which the IRS states that they believe you owe more than the amount you came to when filing your tax return. This can be because the information you submitted doesn’t match other records the IRS has on file, because of IRS findings after an audit, or because you didn’t file your taxes. Before receiving this notice, you will have received other notices (often a CP2000) stating that IRS records don’t match the information you reported on your return.
If you receive an IRS Statutory Notice of Deficiency, you have 90 days to either pay this additional tax or challenge the proposed additional tax in Tax Court. This 90 day period begins the day the IRS sends you the notice, not the day you receive it.
Whether you believe you owe the additional tax or not, it’s important to respond to this notice within the 90 day period. It’s particularly important to respond if you want to challenge the additional tax amount. If you wait longer than 90 days to petition against the additional amount, you lose your right to fight the additional tax in Tax Court.
Getting an IRS notice in the mail can be stressful, especially if you can’t pay your tax balance right away. But the worst thing you can do when you receive an IRS notice is ignored it. If you ignore early IRS notices, you run the risk of experiencing IRS actions like liens (legal claims to your property) and levies (seizure of your property).
There are also other actions the IRS can take if you ignore their notices and fail to pay your tax balance. For example, they may send an IRS agent to your home. And in rare cases, usually, in the case of tax fraud, the IRS can file criminal charges against you, which could end up resulting in jail time.
While we’ve largely talked about what happens when you ignore notices about a tax balance, you can also receive notices for failing to file entirely. If you fail to file your tax return, the IRS may send you notices in which they request you file. If you ignore these notices and do not file your return, the IRS may file a return for you. This is called filing a substitute for a return. If the IRS files a substitute for a return on your behalf, they will calculate your return for you based on your previous tax returns. If they file for you, you have no control over what’s filed on your return, which means you can miss out on valuable tax deductions or tax credits and end up owing far more than you would have if you had filed yourself.
If you receive a notice from the IRS in the mail, you should always take steps to resolve your tax issue, either by contacting the IRS yourself or hiring a professional, who you can give power of attorney to contact the IRS on your behalf.
If you owe the IRS money, Tax Defense Partners is here to help. Our team of dedicated CPAs, tax attorneys, and IRS Enrolled Agents is experienced at resolving a wide number of tax issues. We can speak to the IRS on your behalf to help settle your tax debt for the lowest possible amount allowed by law. Our goal is to not only help you resolve your tax debt but to take the stress of dealing with the IRS off your shoulders.
If you need help setting up an installment agreement, requesting an offer in compromise, dealing with an audit, resolving unpaid or unfiled taxes, or resolving any other tax issue, contact Tax Defense Partners to start solving your tax issues today.