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How to Resolve IRS Collections Issues

Searching for a way out of the Wilderness
Image by Ali Yahya

Clearing up IRS Collections issues can be boiled down to 3 basic steps:

  1. The first step involves what the IRS calls "Compliance". Before the IRS will negotiate any deal on back-taxes the taxpayer must have filed all tax returns and show that the current year withholding and estimated taxes have been paid. The IRS will not waste their time in negotiations if the taxpayers tax debt is continuing to grow.

  2. The next step is to run your financial numbers using the same formulas that the IRS uses in order to develop the best strategy for minimizing the impact of the IRS on your life. This formula is called the "Reasonable Collection Potential" or RCP for short. The end result of this formula is the amount that the IRS believes the taxpayer can and should pay to the government. Once you know the RCP amount you can develop your strategy which usually includes one of the following:

    • Payment plan​ - several varieties exists of which some are easy and some are harder.  

    • Offer-in-Compromise - IRS agrees to take a smaller amount than what is owed because the formula says its the best deal possible given the taxpayers circumstances.

    • Uncollectable Status - the formula shows that a taxpayer simply does not have the means to pay and as a result the IRS agrees to go away for 18 to 24 months.

  3. Once you have a strategy, you need to implement. The implementation plan involves talking with the IRS and providing them with evidence to show that your plan to pay the government meets their guidelines. By cooperating with their requests for information, you can usually avoid having the IRS levy wages or seize money from your bank and investment accounts.

Three easy steps. Well not that easy in most cases. Generally, this is a multiple year project that can easily last until the Statute of Limitations (10 years plus) runs on the debt.   The only way to get rid of the IRS speedly is to pay what they demanded. Most people get into this problem because of their inability to pay, so working out a deal that they can live with is their only alternative.

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