The IRS and Your Tax Debt: Who Pays and Who Gets Away?

According to the United States Government Accountability Office (GAO), the IRS goes through a decision process involving about 70 steps when determining what it will do about your tax debt. The number of hoops you have to jump through and the amount you have to pay depend on several factors:

• How you respond to notices For example, taxpayers who receive a notice can provide more information about their financial situation, make a partial payment, negotiate a reduced balance, or other alternative. Not responding at all can be a dangerous and expensive choice. The GAO states that, "The nature of taxpayers' responses helps determine subsequent IRS action." If you don't respond to a notice, the IRS can research and find bank accounts to levy or it can place a tax lien on your property.
• Your source of income If your back taxes are from a business, the debt becomes a higher priority for IRS collection. The risk of businesses continuing to accumulate tax debt (and theoretically gain some advantage over their competitors by not paying taxes) ups the ante for IRS collectors.
• How much information the agency has about you If your bank accounts, property, place of business, and address are known, the agency is fairly confident it cab collect from you. If you refuse to make contact, you may find that your assets or income (like Social Security payments or wages) can be taken or garnished to offset your tax debt.
• The amount of your income and assets If there is money available to pay the debt you will not get off easily. In 2007, the IRS collected $43 billion in tax debt, and they didn't get it by playing nice.

When Is IRS Tax Debt Considered Uncollectable?

The IRS directs most of its efforts toward getting amounts it deems collectable. According to the GAO, in 2007 only about 36% of taxes owed were determined to be collectable by the IRS. The remainder was written off because the debtor was not found, there were no assets or income to seize, the debtor died, the business went under, or the statute of limitations for collection was exceeded.

When Does the IRS Allow Partial Payment?

Section 6404(a) of the Internal Revenue Code allows the IRS to give a taxpayer a break if the liability is "excessive," "assessed erroneously," or "assessed after the applicable period of limitation has expired." Taxpayers can reduce what they owe by providing additional information, amending their returns, or negotiating settlements. Keep in mind that what you consider "excessive" is probably not considered excessive by the IRS.

A reputable tax professional or attorney can help you provide more information to IRS agents, point out IRS mistakes, determine the statute of limitations and if it applies to your debt, and help negotiate a settlement that you can live with. However, if you truly owe the tax debt and have the means to pay it, you will probably have to pony up. And sooner is better than later.

Source:
United States GAO

About the Author:
Gina Pogol writes about taxes, finance, and mortgages for an online media company. She earned a BS in Financial Management from the University of Nevada and formerly worked as a tax accountant for Deloitte and as a paralegal for a tax attorney.