The IRS is generally not out to take taxpayers’ property or put them in jail (except for tax “evasion”) for owing money, although they have the power to do so, and can and will in appropriate circumstances. The IRS wants taxpayers to “get current” (comply on an ongoing basis):
- file past (you can file your returns even if you can not pay the tax shown) and ongoing tax returns;
- pay current and future taxes (estimated taxes, deposits and payments due with returns); and
- pay as much as you are able to (if any) on past liabilities.
If you are not “current” in your ongoing obligations the IRS is unlikely to work with you on past obligations until you are current, and is likely to use “enforced collection“, such as levying (seizing) assets, garnishing wages etc.
“Current” means filing your ongoing returns as due and paying the tax due, as well as making estimated tax payments if you are required to do so.
The IRS will likely file a tax lien, which encumbers our property and creates problems with refinancing or selling it.
The IRS is easier to work with on delinquent employment taxes if the business has shut down. If you continue to operate a business the IRS is very inclined to close the business if you continue to incur additional delinquencies or fail to file returns. The IRS willingness to take installment payments from a business continuing to operate varies with the circumstances.
The IRS requires you to provide detailed financial information so it can evaluate your ability (or inability) to pay. You must list and value all of your assets and liabilities, income and necessary living expenses (housing (rent or mortgage), transportation, health care, insurance, utilities, current taxes, court ordered payments such as child support, etc. See IRS collection standards).
The financial information you provide is a “road map” to your assets and income. If you do not not reach some agreement with the IRS and it uses enforced collection. It knows where you work to be able to garnish your wages, where you bank in order to levy your bank account, and where you live to know where to file a tax lien. Regardless, providing this information is required if the IRS is to cooperate. Failure to provide the financial information will likely lead to enforced collection and the IRS has substantial tools at their command to enforce collection of tax liabilities.
See the topics on collection options for additional information:
- Extension of Time to Pay — Taxpayers may be eligible for a short extension of time to pay of up to 120 days. Taxpayers should request an extension if they would be able to pay their taxes in full within the extended timeframe.
- Uncollectible – If the IRS determines that a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves (if ever).
- Installment payments;
- Expiration of the Statute of limitations; and
- Offer in compromise – Some taxpayers are able to settle their tax bill for less than the amount they owe by submitting an offer in compromise. However, the criteria for accepting an offer are strict and relatively few offers are accepted each year.