Don’t be afraid about tax debt
“Don’t be afraid,” Thomas Wayne told his son Bruce in Christopher Nolan’s film “Batman Begins.”
It’s good advice in many contexts. And that certainly includes dealing with the IRS about tax debt.
In this post, we will give three reasons why resolving your tax debt should be seen as a manageable problem, not one to make you afraid.
The IRS is not allowed to go back an unlimited amount of time to audit tax returns from previous years.
The general rule is that the IRS can go back three years for tax audits. Or, put another way, the IRS can look at returns filed in the last three years when conducting an audit.
To be sure, there are exceptions to this. If the IRS believes you have substantially underreported your income, the limitations period can be extended to six years. The period can also be extended when there are allegations of criminal tax evasion.
In some cases, the IRS may also ask you to extend the limitations period so that you can provide more documentation for your position.
The key point, however, is that the IRS does not have a blank check to look back at all of your previous tax returns. You don’t have to worry about this because there is not only a statute of limitations on audits; there is also a statute of limitations on how long the IRS can try to collect tax debt.
Even if you have tax debt, the IRS cannot immediately seize your bank account, garnish your wages or put a lien on your house.
The IRS has many required procedures it must follow before it can actually take your property in a collection action. The required procedures are known as Collection Due Process.
For example, the IRS cannot immediately send out a notice of levy, stating an intention to take your property to pay your tax debt. Before taking collection action, the IRS has to send something called a CP501 Notice, also known as a Notice and Demand for Payment.
In short, there are well-established rules on what the IRS can and can’t do to collect tax debt. Keep this in mind as you take steps to resolve your debt. This will also help you steer clear of scammers who pose as IRS agents and try to pressure you with scare tactics.
There are realistic options available to resolve tax debt.
It is undeniably stressful to have tax debt that you aren’t able to pay all at once. It’s important to address this situation, before IRS collection action threatens to put garnish your wages, seize your bank account or put a lien on your house.
Fortunately, there are ways to resolve your tax debt and move forward. An offer in compromise (OIC) offers a chance to take care of your debt for less than the full amount you owe. An installment agreement can enable you to pay off your debt in monthly installments of manageable size.
There are other types of payment plans available as well. The point is that you have options. A knowledgeable attorney can help you come up with a plan that makes the most sense for your situation – and remind you to not be afraid.