You owe the Internal Revenue Service (IRS) money and you’re not quite sure what to do. It probably doesn’t help to hear this, but you’re not alone. According to a CNBC report, about 30 million people, or 21 percent of U.S. taxpayers, owe money this year. That statistic, gathered from the Government Accountability Office, is likely cold comfort when the debt is yours and you and you bear the responsibility of dealing with it.
At first glance, the IRS’s advice “don’t panic” seems laughable. It’s only after researching options for repayment that it becomes clear solutions are available.
Whether you owe $10,000, $20,000, or a few hundred dollars, the IRS is prepared to help you find a plan to get rid of that debt. It makes sense when you think about it. The government can work with you and recoup their money or they can make it impossible for you to repay and lose those funds and lose the money. It is in their best interest to work with you.
Debtor Beware
Would like to share an insider secret here. Most people who have worked with the IRS to settle their tax debt over the last few years report it is a remarkably easy thing to do. Sure, we’ve all heard stories about atrocities committed by the IRS against well-meaning Americans who owe them money. Who knows how many of those stories were true and how many became an urban legend. The fact of the matter is if you were to call the IRS today and tell them you needed to come up with a plan to pay off your tax debt it’s more than likely that you would speak with a non-judgmental, knowledgeable, patient representative.
If ads on television, radio, in print publications, and on the Internet are to be believed, the IRS is impossible to work with. In fact, they’re out to get you, to take everything you hold dear. These advertisements are produced by for-profit tax relief companies who benefit by scaring you half out of your wits. They sound legitimate, telling you that they can reduce or even eliminate your tax debts. Of course, they want you to pay them an upfront fee, often thousands of dollars.
The scary part about tax relief companies is how convincing their sales staffs are. It’s as if they believe their own lies. They may even offer testimonials from people who have been helped. There is, of course, no way to verify if the testimonials are true.
Once you realize how ineffective these tax relief companies are, it becomes clear why they ask for an up-front fee. They know how unlikely it is that they will be able to do anything they promise. What they will tell you is that you are qualified for one of the IRS’s legitimate hardship programs. The truth is, a small percentage of the population qualifies for such programs and these con artist companies know it.
Do they ever help anyone reduce or eliminate their tax debt? Possibly. But why would you pay a company your hard-earned money to do something you can do just as easily yourself by working directly with the IRS?
One final note about companies who make promises they know they can’t keep. The Federal Trade Commission has been hit with reports from taxpayers who have been conned by tax relief scams. Some report losing thousands of dollars, and some even complain that the tax relief company they worked with stole more money by making unauthorized charges to their credit cards or withdrawing money from their bank.
Unrealistic Fear
Americans appear to be terrified of the IRS, so afraid that we would prefer to work with an unethical debt relief company than simply call an IRS helpline.
There is, somewhere in the shared consciousness of Americans, the belief that the IRS is the enemy. Maybe it’s the fact that criminals like Al Capone were eventually brought down for cheating on their taxes, or memories of old movies in which IRS agents swarm a couple of backcountry bootleggers. Whatever our reason for believing the IRS is out to get us, it has given us a false sense of who they are.
As odd as it is to believe that we can still fall for such scams, Bloomberg reported the story of a woman named Lisa who was convinced the IRS was on their way to put her in handcuffs and lock her away in jail. It all started with a call from a man who identified himself as an investigator with the Treasury Department. He went so far as to tell her that the IRS had sent her three notifications of some fictional mistake and because she did not respond, they were on their way to pick her up. Further, he promised that she would be held in custody for at least six months while an investigation pended.
The call, of course, was all part of an elaborate scam. The IRS never calls a taxpayer to threaten them. It simply does not happen. That said, con men understand the average American’s fear and preys upon it to squeeze money out of terrified taxpayers.
If you owe money to the IRS, the first thing you must do is get over any fear of what the IRS might do to you. Do some people go to jail for tax evasion? Yes, but they have to work very hard at trying to trick the government out of its money. The truth is, The IRS is unlikely to be shock by your situation. The fact that you want to work it out speaks volumes.
3 Smart Steps
- Open all mail from the IRS, even if you don’t want to read it. It’s important to know precisely where you stand.
- Find out if you qualify for an abatement of penalties. Those penalties seem particularly cruel as they are stacked atop your balance. The IRS will often reduce or remove penalties and interest if you write a letter explaining your situation. For example, if you or your spouse had a serious illness during the tax year, you ran up against an unusual tax event, or you simply made an honest mistake, they may waive the penalties. Be sure you ask for an “abatement” in the letter you send.
- Call the IRS, and if you can’t pay your bill in full, ask about an Installment Agreement. If you owe less than $10,000 they cannot deny the request. If you owe more, they may also set up an installment agreement. If not, they can tell you about other options – such as an Offer in Compromise. While it’s certainly not easy (you have to offer at least as much as your net worth – everything you own, minus everything you owe – it may allow you to settle your debt for less than you owe.
The point of the matter is that owing money to the IRS is not the end of the world, as heavy as it might feel. Like millions of other Americans you have the right to ask for help and to come up with a program you can worth with.
Dana George-Berberich is a freelance reporter and novelist. She has written finance articles for newspapers across the country and for companies like Dun & Bradstreet and Bankrate.
