FAQs about Owing Money to the IRS

Why is the IRS coming after me for tax debt?

There are four main driving reasons why the IRS has come to collect:

  1. You are self-employed, suffered a downturn in business, and generally pay little in taxes to the IRS.
  2. You are retired or disabled and live on a fixed income.
  3. You are a freelancer or contractor who did not set aside enough money for taxes.
  4. You have stopped taking federal deductions because of budgetary reasons (you're out of work, for example) and you need the money to make ends meet.

What debt collection methods does the IRS use?

The IRS collection process starts much like any other collection process for debts like unpaid credit card balances and past due medical bills. You will receive notice in the mail that states the amount of tax debt that you owe. The IRS will request that you pay the debt in full or allow you to enter into a monthly payment plan. (The IRS may also withhold part or all of your tax refund.) But, unlike other forms of debt collection, if you ignore the IRS and fail to pay, the IRS may impose a levy on your property-on your paychecks, bank accounts, retirement income, even your Social Security benefits-and/or impose a Federal Tax Lien on all of your property, including your car and home. In other words, it's difficult to escape tax liability.

What is an IRS "offer in compromise"?

An offer in compromise is a form of tax debt settlement and negotiation. The IRS allows some taxpayers, those who are behind, to offer to pay a lesser amount out of the total owed, if you cannot pay the entire original amount. You can pay in a lump sum or in monthly installments, until the lesser agreed-upon amount is paid in full. You must (1) be eligible; (2) submit an offer; (3) have that offer be accepted by the IRS; and (4) continue to make timely payments.

Am I eligible?

You must be current with filing and related payments. In other words, you must not have failed to file your taxes. You must also not be involved in an open bankruptcy case (although some tax debt can be discharged through bankruptcy).

How do I submit an offer that the IRS will approve?

The IRS generally looks at your overall ability to pay your tax debt, based on your income, expenses, and equity. It will decide a case based on the individual facts and circumstances, which makes preparation important. What works in one case may not work in another. You must prove at least one of the following: (1) You are not liable for the debt; (2) you will never be able to repay the full amount; or (3) paying the debt is an undue economic or financial hardship.

What is an undue economic hardship?

This generally means you are unable to make ends meet. If you are having trouble paying for basic living expenses such as food, the rent or mortgage, and the costs of doing business that allows you to generate income in the first place, then you may qualify for an offer in compromise because of undue hardship. Many taxpayers who qualify under undue economic hardship have limited incomes because they are elderly, in retirement, or are disabled and cannot work. Others may have lost their jobs or suffered a downturn as a business owner, contractor, or freelancer.

How do I work with a law firm like Ledford, Wu & Borges, LLC?

You pay us directly and we will go to work on your behalf. Fees vary based on the complexity of the case. After you come in for a free consultation, if you decide to work with us, together we will come up with a payment schedule for fees and costs. Then you can leave it in our hands. We will prepare the case, have you sign off on it, and send the paperwork to the IRS. While results aren't guaranteed, the help of an experienced tax debt lawyer can improve your chances of success.