Denver Accounting and Tax Resources

Dealing with the Internal Revenue Service when You Owe Money

By Richard M. Rothman, E.A.

Dealing promptly with the Internal Revenue Service should be a high priority with everyone. The reason is that they have more power to collect bad debts then virtually any other organization. While most creditors must go to court to obtain a judgment against you, the IRS is vested with the power to seize your property without a court order. The only requirements are that they have a valid assessment, they give notice with a demand for payment (which has to be sent to your last known address), and they give notice of intent to seize.

There are some items that the IRS cannot take or levy such as the taxpayer's personal residence, apparel, school books, tools and books used in your trade up to $1,100 in value, social security benefits, workers compensation, pension payments, personal effects up to $1,650, undelivered mail, and part of your paycheck. Everything else they can and will take if you ignore them.

One question I am often asked from people who owe money to the IRS is, "Can they put me in jail if I don't pay this?" The answer is no. Unless you fraudulently conceal your assets or otherwise conspire to beat the government out of its money, you have not committed a crime by not being able to pay your tax bill.

My recommendation to people who owe the IRS money is to be up front with them and negotiate a settlement. Always respond promptly when you are contacted by them and they won't go after your bank accounts and paycheck. Generally they will put you on a payment plan that you can live with if you communicate honestly with them.

The Internal Revenue Service will also offer a plan to those who will never be able to pay the amount that they owe. This is called an Offer in Compromise. In this situation, the IRS may agree to take pennies on the dollars owed, in order to clean up your account and make it current. There is a lot of work involved in an Offer in Compromise procedure. I suggest getting help from a tax professional if you need to do this.

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