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Owe The IRS? 10 Things To Know

Last updated 04/09/2024 by

Owing to the IRS can be scary and stressful, but it doesn’t have to be. Here are 10 things to keep in mind when dealing with the IRS.

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1. There is no set limit on what the IRS can garnish from your paycheck

If you owe federal taxes, there is no limit on how much the IRS can take from your paycheck. Instead, there is a limit on what you can take home. Anything that you earn above that limit, the “exempt” amount, will be sent to the IRS.
The amount of your money that is exempt from the garnishment is based upon the filing status on your last tax return, how often you are paid, and the number of exemptions that you claim on your payroll. It’s typical for the IRS to garnish 70% or more of employees’ wages, which is an effective way to get your attention.

2. The conviction rate of IRS criminal cases is over 80%

When it comes to criminal cases, the IRS has a very high success rate. Over the last ten years, the IRS has maintained an average conviction rate of over 80% for its criminal prosecutions. What’s more, the percent of those convictions that received prison time as part of their sentence was 80% in 2020.

3. IRS penalties can often be reduced to ZERO

The IRS has more than 140 tax penalties in its arsenal. These penalties add up fast and often represent a big chunk of what people owe in tax debt. The good news is IRS penalties can often be reduced to ZERO. There are two main ways to that. First, you can request penalty relief under the IRS’s “fresh start initiative.” Second, you can also request relief due to “reasonable cause,” which includes situations like economic hardship, death or serious illness of a loved one, and receiving bad advice from a tax preparer. In 2020, the IRS abated (i.e., forgave) $11.4 billion in civil penalties. So, penalty abatement is certainly worth a try for many taxpayers

4. The IRS would rather settle your case

The IRS periodically audits the difference between what taxpayers should be paying and what the IRS collects in taxes. Even when accounting for costly enforcement actions, the IRS only collects around 80% of what it says taxpayers owe. IRS agents know this and are willing to negotiate with reasonable taxpayers who are making an effort to repay their tax debt.
Its reputation aside, the IRS is actually a poor bill collector. The IRS is an incredibly overworked and underfunded agency. If they have an opportunity to settle your case before it goes to the courtroom, it’s an option they will consider. In fact, there’s an official Offer In Compromise program that handles just that.
The Offer in Compromise (or OIC) program is an Internal Revenue Service (IRS) program that allows qualified individuals with unpaid tax debt to negotiate a tax settlement of less than what they owe. In 2012 as part of its Fresh Start initiatives, the IRS greatly liberalized the standards that it uses for acceptable offers.

5. Tax professionals provide higher OIC acceptance rates

Submitting an Offer in Compromise (OIC) is a very intricate process, and there are many filing requirements that need to be met to qualify. Hiring tax professionals, such as enrolled agents and tax attorneys to negotiate a settlement with the IRS on your behalf can greatly increase your chances of qualifying for a tax relief settlement. It’s common for professional firms to maintain OIC acceptance rates of over 90%. In contrast, the average acceptance rate is around 33%. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee and charge competitive rates. Check out which tax relief company is the best fit for you.

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Tax resolution professionals are trained to take advantage of these settlement opportunities on your behalf. Most reputable firms will review your case and provide a consultation for free. It’s a good idea to at least speak with a professional experienced in OIC work before trying to take the challenge on your own.

6. The IRS has a conflict of interest

No, this is not another conspiracy theory about the IRS being unconstitutional. The IRS has two mandates from Congress that aren’t completely aligned.
  • First, the IRS must ensure taxpayers follow the law and pay all the taxes they are due. That is, after all, how the government is funded. Even with the IRS’s “enthusiastic” tax collection methods, the federal government is still in the red.
  • Second, Congress has also mandated the IRS to provide and administer programs that give taxpayers who are behind on their taxes a fresh start.
These conflicting orders send mixed signals to employees and require a constant balancing act from IRS employees. It is in your best interest to begin the settlement process with the IRS as soon as possible to demonstrate that you are willing to resolve your back tax issues. Showing that you are prepared to engage the IRS will help you retain your assets while you are in the process of negotiation.

7. The U.S. Tax Code is unbelievably complex

The Internal Revenue Code is so complicated and convoluted that most people feel completely in the dark when approaching the IRS to resolve their tax debt problems. Currently, the federal tax rules span 75,000 pages. That is three times bigger than when President Jimmy Carter called it a “disgrace to the human race” in his 1976 acceptance speech. The size and complexity of tax law can work in taxpayers’ favor because IRS auditors don’t understand it all that well either. In many instances, entry-level auditors and collection agents do not have tax or financial backgrounds. Be very selective about whom you choose to help you in IRS tax resolution assistance.
Typically, tax preparation companies and accounting firms are not trained in handling IRS resolution strategies. To resolve past-due taxes and become compliant with the IRS, you want to work with professionals with an in-depth knowledge of the IRS processes and who have successfully represented numerous clients in IRS negotiations.

8. The IRS has 10 years to collect taxes from the date you file your tax return, but the statute of limitations can be extended

The Internal Revenue Service has, in general, 10 years to collect an unpaid tax debt. After that, the IRS usually writes off the debt from their books. This is known as the 10 Year Statute of Limitations or the Collection Statute Expiration Date (CSED). For obvious reasons, the IRS does not go out of its way to make this widely known. So, many taxpayers with unpaid tax bills are unaware this statute of limitations exists and make decisions that go against their best interest.
To make things more complicated, there are several ways you can press pause on the statute of limitations without even realizing it. Filing an amended return, requesting an appeal, submitting an offer in compromise, or being out of the country for more than six months can all put a pause on the statute of limitations. You can see why it’s smart to talk with a tax professional before making a move with the IRS when you have substantial tax debt. Just because the IRS did not come calling after a couple of years of missed taxes does not mean you are in the free and clear. They most likely have not gotten around to processing your file yet. You should be proactive about becoming compliant now to avoid worse problems down the road.

9. Taxes are tough to remove even if you file for bankruptcy

Even if you file for bankruptcy, unpaid taxes may stay with you. So, bankruptcy is not always the best solution for your unresolved tax issues. Get legal advice on how filing for bankruptcy will affect any back taxes you owe to the IRS or state agencies.

10. Anything you write or say to an agent can be used against you

The DIY approach may be good for things like home improvement, but it is not so great when negotiating with the IRS. Tax auditors are trained to look out for the best interests of the government, not yours. They will use any information you provide, such as your income, savings, properties, and total net worth, to obtain as much revenue as possible for the IRS.
It’s easy to inadvertently divulge information that will hurt you when negotiating with the IRS. This is one of the most important reasons for hiring an experienced tax relief company. Good firms will know how to present your case and what information to share (and not share) to achieve an optimal solution. The slightest misinformation or misfiling could set you back to square one.

In conclusion

Here’s the bottom line. The IRS can take a chunk of your paycheck, put a lien on your bank account, seize and sell your property, revoke your passport, and garnish your wages. It can even take a percentage of your Social Security check — a benefit that’s off-limits to private creditors. But that doesn’t have to happen.
There are tax debt relief programs that can help you wipe your tax debt clean. It’s possible to negotiate directly with the IRS, but it is often a good idea to hire a tax professional. Get a free consultation today with a tax expert. There is no obligation to hire. At the very least, you’ll know what tax debt relief programs you qualify for if you decide to do it yourself.
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SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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