If you were to ask people what three letters of the alphabet they most feared, chances are you would hear IRS. The Internal Revenue Service gives most people nightmares if they think they must deal with this agency. However, you will not make your bad dream go away by merely ignoring the problem. You must face it head on and be prepared with the knowledge ahead of time so that you can fight for your case.
If you are afraid that you might owe back taxes, the first step to take is to contact the IRS and try to make arrangements to pay. Because they want your money, they are usually willing to work out a payment schedule with you. However, you need to know that your penalties and interest will continue to build until the tax is paid in full. So it does make sense to make as large of payment as possible. Sometimes it may even be to your advantage to charge the tax because your credit card interest rate may end up being lower than the penalties and interest charged by the IRS.
The other option is to file an OIC, which is an Offer in Compromise. These are hard to come by and it is important that you arm yourself with the facts before you even attempt to obtain this. In fact, you will more than likely need the guidance and expertise of a tax attorney or other professional.
An OIC may be had for several reasons. You will need to be able to fully document your case and convince the IRS that this is the only way they will ever get any money from you. One way to receive the OIC is to show that even if all of your assets are liquidated, you still will not be able to pay the amount of taxes that are due. Another way is to prove that you have a catastrophic situation, such as an illness that requires out-of-pocket medical expenses and will prevent you from working. Remember though, that the IRS requires meticulous documentation before it will award this status to your loan.
The IRS may also give you the status of CNC which stands for Currently Not Collectable. This means that for whatever reason you are not able to pay the owed taxes at this time. You will continue to mount interest and late penalties however and once your financial status improves, you will be expected to pay the bill. You may have this particular status for up to 10 years. At the end of that time if you are still unable to pay, then your tax will be wiped clean.
The most important thing to remember is that you must act. Your back or owed taxes will catch up to you and you are in a better negotiating position if you take the initiative and act first.
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