You have likely heard the saying, “Nothing is certain but death and taxes.” So it is pretty much a sure thing that if you do not pay your taxes, the IRS will track you down to get what is owed.
However, you have rights as a taxpayer, and the IRS has a certain process it follows to collect unpaid taxes. It is important to understand what to expect and what you should do if you have not paid your tax bill.
It is also important to recognize tax scams that try to convince people they owe money and need to pay on the spot. To deal with a legitimate tax collection — or to spot con artists — follow these 10 tips.
1. Determine If It Is the IRS Calling
If you owe money, the IRS will not initially contact you via a phone call. “The IRS won’t be calling you out of the blue asking you to verify your personal tax information or aggressively threatening you to make an immediate payment,” said IRS Commissioner John Koskinen in a written statement.
The IRS initiates contact with taxpayers through mail. It does not have agents call taxpayers to announce the IRS is filing a lawsuit, or that the agency is sending local law enforcement to arrest the taxpayer, said Garrett Gregory, a former IRS attorney and co-founder of Gregory Law Group. In fact, the IRS does not file suits against taxpayers or involve police in tax collections, he said.
So simply hang up if you get a call from someone claiming to be with the IRS and demanding you send cash through a wire transfer or prepaid debit card to settle a tax bill. It’s a scam.
If you have been dealing with the IRS on a tax issue and get a call you were not expecting, hang up and call the person you have been dealing with to find out if the call was legitimate, said Mark Luscombe, principal analyst for tax and accounting at Wolters Kluwer.
2. Know the Collections Process
If you file a tax return but do not pay all that you owe, the IRS will send you a bill that marks the start of the collections process. If you do not file a return, it could be a few years before the IRS detects that you did not pay your taxes and contacts you, Gregory said. In either case, though, you will get a letter — not a phone call.
Gregory said that if you do not respond to the first notice, you will get at least two more notices in the mail before getting a final notice of intent to levy. Such a notice indicates the IRS will take your property to satisfy your tax debt.
You will get a final notice of intent to levy at least 30 days before the IRS starts garnishing your wages or seizing assets. The IRS might give you this final notice in person.
3. Know the Audit Process
The IRS may decide to audit your return to verify that the amount of tax you claimed to owe was correct. In that case, you may be informed of the audit in one of two ways, according to the IRS:
- You will receive a letter that you are being audited.
- You will get a phone call letting you know that you are being audited.
While the phone call option seems to violate the general rule that the IRS does not use calls to initiate contact, it is important to note that even if a phone call is used, the IRS will follow up with a written letter. Also, the IRS will not use email to contact you.
The agency might conduct the audit through mail or an in-person interview. You will get a written request for any documents you need to provide for the audit.
4. Know Your Rights
Taxpayers have rights when dealing with the IRS. Luscombe said they include:
- The right to be informed about what they need to do to comply with tax laws
- The right to quality service
- The right to pay no more than the correct amount of tax
- The right to challenge the IRS’ position and be heard
- The right to appeal an IRS decision in court and the right to retain representation
All of these rights are spelled out in the Taxpayer Bill of Rights.
5. Be Proactive
If the IRS contacts you, do not try to ignore the problem in the hope that it will go away. “Once you start getting notices in the mail, the gig is up,” Gregory said. You need to respond to the IRS before it files a lien or starts the levy process.
The IRS will file a lien — a claim against your property — within 10 days after sending you the first tax bill. That lien is public record and will hurt your credit score, Gregory said.
Even if you cannot pay your full tax bill, the IRS recommends you pay as much as you can and explore payment options. This can help you avoid having a tax lien filed if you owe less than $50,000, Gregory said.
If you do not pay anything, the IRS will file a claim against your property and use a levy to take your wages, Social Security benefits or 100 percent of your accounts receivable if you’re business owner, Gregory said.
6. Do Not Automatically Write a Check
The amount the IRS says you owe might not be what you actually owe. David Du Val, vice president of customer advocacy at TaxAudit.com, said he has seen several notices that are not correct. TaxAudit.com provides audit defense for taxpayers.
For example, the amount might be wrong if you have not filed a return and the IRS filed what is called a substitute for return (SFR) based on wages your employer reported paying you, or on other income.
When the IRS prepares an SFR, it uses the standard deduction rather than deductions you might be able to itemize to get your tax bill lower, Gregory said. So prepare your returns for the years you did not file to see what you actually owed — or to find out whether you were due a refund.
7. Prepare Before You Talk to the IRS
If you cannot pay a tax bill and want to discuss your tax payment options, call the IRS at the number provided on the tax bill it has sent you. Before you call, though, prepare to make your case.
Examine your finances to figure out where every penny goes, Gregory said. This will help you build a case for what you can afford to pay the IRS. Be aware, though, that what you think you can pay will differ from what the IRS thinks you can pay, Gregory said.
If you are being audited, make sure you have all the documents you need to substantiate your income or deductions — and make sure they are organized, Du Val said.
8. Negotiate a Payment Plan
The IRS allows taxpayers to make monthly payments through an installment plan if they cannot pay their balance in full when it is due. If you truly cannot afford to pay taxes, you might be able to settle the bill for less than you owe through what is known as an “offer in compromise.”
Be aware that the option the IRS offers you might not be the best it has to offer, Gregory said. “Always ask for something better,” he said. For example, if an IRS agent offers an installment plan with 24 monthly payments but you know you cannot afford those payments, ask if you can extend the repayment period up to 72 months to get lower payments.
9. Do Not Say Too Much
Whether you call the IRS to discuss your payment options or an agent interviews you for an audit, be careful what you say. The IRS will not tell you that what you say can be held against you, Du Val said. “Talking too much, offering too much will get you in trouble,” he said.
Be polite and answer questions truthfully. But provide only the information or documents requested of you, Du Val said.
10. Get Help from a Tax Pro
If owe less than $10,000, you are a low priority for the IRS, Gregory said. But it is still possible your return could be singled out. If you have a low income, you likely can get the help you need from a taxpayer clinic. To find one in your area, check the IRS list.
If you owe a hefty tax bill or are being audited, do not handle it on your own. “Seeking professional help from someone accustomed to dealing with the IRS can often be beneficial,” Luscombe said.
Professionals who are authorized to represent taxpayers before the IRS — such as attorneys and enrolled agents — know IRS rules, how to navigate the agency’s requirements and how to get you the best possible payment terms.
Keep Reading: 25 Ways to Prevent a Tax Audit