What To Do If You Owe Back Taxes

Posted on November 04, 2015

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There are many reasons people owe back taxes. Whether you are a new business owner trying to navigate the tax codes, you didn’t plan for a major life decision that affected your tax rate or you’ve been too busy to take care of your taxes, you are not alone. Once you owe back taxes, trying to get back on track is tough, stressful and expensive.

The biggest mistake any taxpayer can make is failing to file an annual tax return. All United States income-earning individuals above the minimum threshold must report income by filing a federal tax return.

If you owe back taxes, take a deep breath and know that it’s going to be OK. We help people every day trying to make things right with the IRS. One of the top reasons people call our office is to figure out what to do with their past tax debt. Those individuals learn that despite how much you try to forget about it, that debt just won’t go away, ever. Whether the IRS serves you a bank levy, wage levy or seizes your assets, they will find a way to get the money you owe them.

Tips to get you get back on the IRS good list:

Avoid a Substitute For Return
If you have received a Past Due Tax Return Notice from the IRS (Notice CP59, CP63, CP259, CP515, CP515 or CP516) or a Final Notice of Past Due Tax Return (CP518), then the IRS may file a Substitute for Return on your behalf (CP2566 Notice). The IRS will collect information on your income, but they don’t know anything about your deductions, so chances are the substitute for return will not be accurate and certainly not in your favor. To correct this, file your back taxes as soon as you can.

File a Tax Return Extension
If you need more time to prepare your Federal Tax Return, consider filing an IRS Form 4894: Application for Automatic Extension of Time to File. This form will need to be submitted before the April 15 deadline of the year that the taxes are due, although there are some exceptions to the rule. If you are a business, a Form 7007 or Form 1138 might apply to you. Filing an extension doesn’t get you off the hook on paying, it just buys you a little more time and let’s the IRS know that you are working on it.

Start Paying Estimated Taxes
Estimated taxes allows individuals and businesses to keep on track with their income tax and self-employment taxes. If you have income that is not subject to withholding, then this estimated tax is for you and might help keep you out of deeper water (debt) than last time around.

Hire a Tax Attorney
If you are in so deep that you don’t know how to get out, there are some options out there for you. You might be able to qualify for an Offer In Compromise, Installment Agreement or Innocent Spouse Relief. You can even apply for these on your own or ask your tax preparer for help, however there are a number of benefits to have legal counsel advise you on these matters.

Attorney/Client Privilege can be a great advantage to you. Your communications with your lawyer are private and depending on the depth and breadth of your tax problems, this might be a great option for you.

You got yourself into tax debt and how or why is not as important as moving forward and getting out of tax debt and making right with the IRS. A tax lawyer knows this process inside and out and can advise on the way to get the best and most positive outcome. You get peace of mind knowing that your tax attorney can represent your best interests and help get you back on the IRS “good list”, rather than the alternative one.

If you are looking for a tax attorney, Patrick T. Sheehan & Associates has helped numerous clients get back on track with the IRS. No only is Patrick a tax attorney, but he worked at the IRS as the one who recommended accepting or rejecting Offers in Compromise at the IRS District Counsel. Before starting his own practice, he was a Special Assistant United States Attorney with the Internal Revenue Services, Office of Chief Counsel. His understands both sides of the tax liability issues that you are facing and his legal counsel will surely look at the best way to get the best possible outcome.