Navigating Back Taxes: What to Do When Owed to the IRS
Understanding Your Options
Dealing with back taxes can be overwhelming, but understanding your options can ease the process. A Certified Public Accountant (CPA) or Enrolled Agent (EA) is often the best first step, but their roles may not align with your needs. Many tax lawyers don’t prepare their own tax returns because their services are in high demand for advising corporations and businesses. While some specialize in estate administration, estate planning, gift tax planning, and trust-building, most do not handle individual tax returns directly. If your situation is more complex, involving criminal charges beyond non-filing, consider asking your current lawyer for references and mentioning the Kovel Rule. A quick Google search for 'Louis Kovel' should provide more information on this legal principle.Note: Never handle the issue yourself, as the conversation with the IRS can quickly become legal. The advantage of an attorney is confidentiality and professional guidance.
The Importance of Filing Your Tax Returns
Failing to file your taxes means not just a missed opportunity, but also potential penalties. The IRS doesn’t know if you owe back taxes until you voluntarily disclose this information. The first step should always be filing your tax returns, even if you are unable to pay the full amount. Filing helps you stop late-filing penalties and fixes your debt so you can enter into a repayment agreement with the IRS. Remember, as time passes, the interest on your unpaid taxes continues to accrue, making the overall amount owed grow larger.IRS Process and Your Options
If you file the returns but cannot pay the full amount due, you will be assigned an IRS agent. This agent can assist you in discussing your assets and potential financial difficulties to determine an agreeable repayment plan. The IRS offers a program called an Offer in Compromise, which can often result in a lower settlement if your situation warrants it. Engaging an attorney can help you navigate this process, but it can also be done directly with an IRS agent, saving you significant fees.Another option to consider is using a tax preparation firm like HR Block, which can charge much less per return compared to a CPA or attorney. However, the fees can still add up based on the number of returns needed. Remember, both the IRS and your tax professional will continue to accrue penalties and interest daily, so the quicker you take care of the situation, the better off you will be financially.