What to do if you owe money to the IRS: 4 steps to resolution

There is a clear and direct 4 step path to resolving IRS tax problems but you must follow this path in the proper sequence.

An interesting discussion came up yesterday among tax professionals that indicates a need for us to communicate more effectively on the basic steps of resolving an income tax problem. By “income tax problem” here I mean that the IRS is claiming that you owe taxes.

IRS tax problems can ruin a debtor’s life, robbing them of peace of mind, put stress on relationships, undermine financial security, and cause a loss of job opportunities. About 1 in 15 adults live with this tax burden in their lives. But it doesn’t need to be that way. All IRS tax problems are solvable.

The point of this post is to point out that these four basic steps must be followed in the order listed to resolve an IRS tax problem. Too many people undermine their efforts by skipping a step or tackling them out of order. It is not possible to “pick and choose” or approach the problem differently and still expect favorable results.

The four steps, in this specific order, are”

1. File all required tax returns – You can’t move on to the resolution steps until his basic step is complete.
2. Resolve current withholding issues – If the ta problem is caused by failure to withhold axes on wages or failure to file quarterly returns, for example, this must be resolved before IRS will cooperate in the following steps that require negotiating in a “give and take” environment. If the payment problem is ongoing then you can expect little “give” from IRS.
3. Resolve disputed accounts – there are multiple ways and channels available to resolve disputed on the amounts owed. Tax professionals are generally experts on advising on the pros and cons of each approach. One piece of advice that is almost universal: don’t do this yourself. IRS agents are proven to be skilled at listening for other information in your communications that might widen an examination and make your problem worse.
4. Negotiate a settlement– Note that this action comes after the amounts are settled through other accounting or legal procedures. This might be a payment plan or an offer in compromise,or both. IRS is in the business of collecting money and will take the course that will result in the most money in he shortest period of time. They aren’t in the business of issuing liens. garnishing wages, taking you to court, etc., unless you present no better option.

When following these steps, most IRS tax problems can be resolved more easily that the debtors expect.

Some tax experts will accurately say that there are exceptions to my ordered 4 step approach. In this case, for purposes of this general discussion to educate and inform a general readership, these are the exceptions that prove the rule.