ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Personal Finance»
  • Tax & Taxes

How to Pay IRS Back Taxes Owed

Updated on January 7, 2012
KeithTax profile image

Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache.

How much in back taxes do you owe the IRS?

See results

It is important to address back taxes owed immediately. When you owe back taxes, the IRS will continue to add penalties and interest whenever they can. As time progresses, the IRS will become more aggressive in their collection efforts.

Ignoring an IRS letter is dangerous. You can be assessed a tax liability from an audit, filed tax return, unfiled estimated tax return, and letter audit. Many tax assessments are wrong. You need to determine if you really owe the tax. In this article we will discuss incorrect tax assessments and handling back taxes owed.

The IRS has a variety of tools to help resolve your tax problems. Ignoring the issue will lead to unpleasant collection efforts by the IRS whether you really owe the tax or not. Unchallenged tax assessments are considered valid taxes owed. After enough time elapses, your remedies expire. In other words, address the IRS demands or you may end up liable for a tax you don’t really owe.

I Don’t Owe This

The IRS sends thousands of letters a day demanding payment of taxes they think you owe. In reality, the IRS computer couldn’t match a number, so it sent you a letter demanding payment. The IRS assumes you owe the tax or you will challenge the assessment. In the mind of the IRS, ignoring a demand letter is the same as agreeing you owe the money.

If you get an IRS letter:

  • Determine if you owe the tax. Check your records to verify the demand the IRS has made.
  • Respond by the date the IRS requested. A response is expected. No response is considered an admission of guilt. The IRS will begin collection efforts after the date given in the demand letter.
  • If your records indicate ‘no taxes due,’ stick to your guns. Present your documentation proving you don’t owe the money. If the IRS insists, appeal. Consider tax court if the IRS persists.
  • You owe some, but not all, of the IRS assessment. Present your documents. Pay the amount you owe or set up an installment agreement.
  • You owe everything the IRS says you do. Oops. You missed some income or took a deduction you were not entitled to. It happens. Pay the tax as soon as possible to reduce interest and penalties. Consider abatement of all penalties when tax bill is paid. Use an installment agreement if necessary.

Dealing With the Balance Due

Paying a tax bill all at once is not always a choice. You can pay your tax with:

  • An Installment Agreement. File Form 9465 to set up an installment agreement. If you can pay in less than six months, forget the installment agreement and save the application fee. Just pay the back tax owed in the six month window.
  • Abatement. The IRS adds penalties onto the tax and interest owed. When you have paid in full, file Form 843 for abatement of the penalties. The IRS grants a large number of requests. Follow the instructions carefully. Your explanation should be listed in the instructions and stated in three or fewer sentences.
  • Offers in Compromise. If the tax bill is larger than you can ever pay, you may qualify for an Offer in Compromise. This is where you settle with the IRS for less than the full value. The IRS uses a formula for what they will accept for an offer: quick sale of assets (80% of full value) minus liabilities, plus 24 months of disposable income. See the instructions of Form 656 for details.

Final Notes

It must be repeated: never ignore an IRS letter for back taxes owed. When you owe back taxes, the best course is to take action resolving the issue. You can’t move beyond the tax problem until you address it. Consult a tax professional if you can’t manage the tax issue alone. Most IRS requests are scarier than they really are.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized. (Privacy Policy)
    CloudflareThis is used to quickly and efficiently deliver files such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisements has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)