Tax Guidance for Dealing with Back Taxes

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When taxpayers owe the Internal Revenue Service, it is very helpful to understand what options they have about their back taxes before trying to resolve the issue with the IRS.

Below are five insights I have learned over my years of dealing with the IRS where a taxpayer owes back taxes.

1. If you think you can pay your back taxes in 120 days, and you never asked for an extension of time before from the IRS, asking now for a 120 extension of time to pay makes sense for your situation. Sometimes it is also useful to ask for an extension of time even if you do not think you can pay in full since you may be able to get the balance down to a lower level and avoid federal tax liens.

2. The IRS accepts debit card payments, and the debit card fees are low. This is useful if you have the money and need to show a quick payment to stop a levy or avoid a federal tax lien. The IRS also takes credit card payments for back taxes, but the fees are high so beware of this option unless the cost is worth it for your situation and you can pay the balance of the credit card without an interest charge.

3. Controlling to which years the payments you are making can have a significant effect on the overall cost of resolving the tax issue of back taxes. Under tax payment plans, the IRS will apply the tax payments you make to the oldest years since the statute of limitations on collection (of 10 years) will expire first on the oldest years. If you are making a voluntary payment, it is usually best to pay an earlier year since it will reduce the penalties charged.

4. The IRS is more worried about your current year taxes being paid to date, then the older balances. Therefore, check your withholdings on your payroll and make all estimated tax payments before calling the IRS to discuss with them the back tax issue.

5. The main forms to resolve past due tax debts are the forms 9465, 433-F, 433A and 433B.

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