Five Steps to Settling Your Tax Liability

So you owe the IRS money, and are tired of ignoring the situation; or maybe the IRS is threatening levy and you cannot ignore them any more - what do you do? The basic steps are simple:

Step 1 - Understand where you are in the collection process
Step 2 - Triage to stop collection actions
Step 3 - Analyze your financial situation
Step 4 - Select a settlement option and propose it to the IRS
Step 5 - Negotiate and settle.

That's it - easy right? Well, maybe not so much, but I'll break these down one step at a time over the next four posts so you can do much are all of this yourself.

Today's post is on step 1 - understand where you are the IRS collection process. This may seem pretty basic, but many people go running right to a tax professional without taking a few minutes to understand where they are. In my opinion, this opens them up to being taken advantage of. So don't be taken advantage of by learning a little bit about the IRS collection process.

I've created a whole page with lots of detail about the IRS Collection Process, so check it out to understand the term's I'm using below. The reader's digest version is simple - you are in one of 4 situations:

• The IRS has not sent your return to Collections. This is the best situation because there is the most time to prevent Collection Action (a Lien or Levy)
• The IRS has sent your return to Collections but they have not taken action. At this point, it is only a matter of time, so the matter is more urgent.
• The IRS has notified you of Intent to Levy, and may have already issued a Lien. Take immediate steps to prevent Levy.
• The IRS has Levied your assets by freezing accounts or garnishing pay. This situation requires immediate help from  a Tax Professional or the Taxpayer Advocate Service. Every heard of the Tax Payer Advocate Service (check them out, they can be a big help!)

Once you understand your where you are, you will understand how much time you have to get things settled. Unless you are facing immediate levy, suggest you take a bit a learn more before rushing to a tax professions.


Next post I'll talk about triage - that is stopping IRS collection action. Guess what? You can do it, there is no magic, all you need to do is 1) know what forms to file, 2) have the number to your tax payer advocate available in case the IRS collections department is not responsive. More soon!