- Don't try to avoid IRS collection efforts. This agency has the authority to garnish wages, seize property and bring charges against delinquent taxpayers. The IRS will aggressively pursue any of these options if the taxpayer does not cooperate.
- The IRS measures each case by the reasonable collection potential, or RCP. This number includes the total value of bank accounts, real estate, cars and other personal property, which the agency has the legal right to seize or attach for the purpose of collecting taxes. The RCP also includes the future income of the taxpayer, which can be garnished or levied by the IRS. Using these numbers, the agency applies a mathematical formula to determine the collection potential.
- For overdue taxes, the IRS may agree to a simple installment agreement. This allows the taxpayer to repay the full amount of overdue taxes in monthly installments. Interest and penalties on the overdue amount continue to accrue. The IRS also charges a one-time fee to set up the installment agreement. The higher the regular installment payment, the faster the debt is paid.
- The IRS may agree to an offer in compromise, or OIC. This settles the payment of back taxes for less than the full amount due. The filing fee for an OIC is $150, and the taxpayer must submit an initial payment and an offer amount. The IRS then reviews the application. The acceptable offer amount will depend on the realizable value of the taxpayer's assets, and the amount that the agency could reasonably expect to collect over a period of time. There is a 10-year statutory limit on the collection of federal taxes.
- There are several different reasons for the IRS to consider an OIC. In some cases, the taxpayer proves that he does not have the income or assets to pay taxes, either through a lump-sum settlement or through an installment agreement. In other cases, the agency may agree that the sum of taxes owed may not be correct. The taxpayer may have new evidence that the tax should be reduced, or the IRS may have made a mistake in calculating the tax.
- If you owe the IRS more than $10,000, hire a tax professional to represent your case to the Internal Revenue Service. This agent must be a certified public accountant or a tax attorney licensed in your state. An "enrolled agent" can be from any state. Hire a reputable agent before filing any additional tax returns. Keep all tax returns from previous years as well as any and all documentation that goes with them.
