If you owe taxes to the IRS but didn't send payment with your return, the IRS will probably send you a bill. When you receive the bill, you shouldn't panic. However, you shouldn't ignore it either. The IRS charges heavy penalties and fines on unpaid tax debt. If possible, pay your bill in full by check, credit card, debit card, or electronic fund transfer as soon as possible. The IRS website has more information on how to do this. However, if paying your bill in full is not possible, or if the bill contains an error, read on for tips on what to do next.
What to Do if the Bill Is in Error
If you received a bill that you think is in error, contact the IRS as soon as possible. The appropriate contact information should be listed somewhere on your bill. Prepare a written explanation of why you think the bill should be reduced. Include copies of any supporting documents, including past tax returns, receipts, past tax payments, etc. Do not send originals unless specifically requested to do so – you may never see these documents again.
You should also make sure to keep good records of any communication between you and the IRS. Keep copies of any written correspondence along with the rest of your tax documents. If you choose to conduct business over the phone, keep a journal of each phone conversation, noting the date and time of each call, the name and ID of any person with whom you spoke, any relevant contact information, and the substance of the conversation. You may also want to speak to a tax attorney who may be able to advocate on your behalf.
What to Do if You Can't Pay in Full
First, consider sending the IRS an Offer in Compromise to see if you can get your tax bill reduced. If that's unsuccessful, you should reach for your calculator. The IRS charges a late penalty of .5 percent for every month a tax bill is not paid. That amount will increase each month until it reaches 25 percent of the total tax debt. On top of that, the IRS charges interest on back taxes, penalties, and interest of 3 percent per year, compounded daily. Many people are able to take out a loan to cover their tax debt at a lower interest rate than the IRS. Even paying through credit card may offer a better overall interest rate, although it will probably be fairly close.
If you don't want to take out a loan, you can try to set up a payment plan with the IRS. However, you'll still pay interest on your total tax debt, and you'll need to pay a start up fee to file the application for a payment plan. Keep in mind that any future refunds will be applied directly to your tax bill, but that doesn't mean you can skip a payment under your plan.
Finally, if your tax debt is older, you may be able to get it discharged through bankruptcy under certain circumstances. A bankruptcy attorney will be able to evaluate your situation and explain your options to you.
For more information, see FindLaw's sections on Tax Problems and Audits and Debts Discharged through Bankruptcy.
Get Legal Help with Your Tax Bill from the IRS
Getting anything in the mail from the IRS is enough to make your heart skip a beat, especially a bill for additional taxes owed. If you have questions about a tax bill from the IRS, or other tax-related issues, you may want to contact a qualified tax attorney for help.
