5 Tips for Dealing with Back Taxes
Authored By: Montana Legal Services Association (MLSA)
In this article, you’ll learn:
- 5 tips for dealing with IRS tax debt
- Where you may find free legal help for IRS tax problems.
If you find you owe more than you can pay with your tax return, don’t panic. Make sure to file on time. That way you won’t have a penalty for filing late. You may have options if you cannot afford to pay back all of your debt. And, there may be free legal help available.
Here are 5 tips for when you can’t pay all your taxes by the due date:
- File on time and pay as much as you can. File on time to avoid a late filing penalty. Pay as much as you can to reduce interest charges and a late payment penalty. You can pay online, by phone, or by check or money order. Visit IRS.gov for electronic payment options.
- Get a loan or use a credit card to pay your tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties. For credit card options, see IRS.gov.
- Don’t ignore a tax bill. If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you are suffering a financial hardship, the IRS will work with you. You can find out more about the IRS collection process at IRS.gov.
- Consider your options. You may have options if you cannot afford to pay back all of your tax debt. Here are some possible options for you:
- Installment Payment Plan: The IRS and the Montana Department of Revenue may agree to let you pay the tax debt over the course of two to five years if you can't pay all at once. You don’t need to wait for the IRS to send you a bill before you ask for a payment plan. The best way is to use the Online Payment Agreement tool on IRS.gov. You can also file Form 9465, Installment Agreement Request, with your tax return. You can even set up a direct debit agreement. With this type of payment plan, you won’t have to write a check and mail it on time each month. It also means you won’t miss payments that could lead to more penalties.
- Currently not Collectible: You can apply for the IRS to temporarily suspend collection of your tax debt if you cannot afford to pay the tax debt and your basic living costs. You can call the IRS at 1-800-829-1040 to request Currently not Collectible (CNC) status.
- Offer in Compromise: The IRS may settle your tax debt for less than the full amount if you cannot afford to pay the tax debt and your basic living costs. You can find more information about Offers in Compromise on the IRS website here.
- Bankruptcy: Sometimes federal and state tax debt that is more than three years old can be discharged in bankruptcy.
- Important: The best way for you to deal with back tax debt is very personalized to your own situation. It is a good idea to talk to a lawyer about your options.
- Get legal help. Any time you have a problem with the IRS, it is a good idea to talk to a lawyer. Many states have a Low Income Taxpayer Clinic (LITC) that provides free legal help to eligible clients. You may also want to hire a private lawyer. Our Take Action section below has links for you to find legal help.
Low Income Taxpayer Clinics (LITC)
Low Income Taxpayer Clinics (LITC) can usually help eligible clients with:
- Negotiations and Tax Debt Settlement
- Innocent Spouse Relief Requests
- Injured Spouse Claims
- Earned Income Tax Credit Appeals
- Audits or Examinations
- Deficiency Notices/Tax Court
- Liens and Levies
LITC cannot prepare your tax return for you. Learn more about free legal help for IRS tax problems.
Get Legal Help
- If you live outside of Montana, you’ll want to look for free legal help in your state.
- Montana Legal Services Association (MLSA) runs a Low Income Taxpayer Clinic (LITC) that gives low income taxpayers free legal help on federal tax disputes year round. You will need to apply for services to see how LITC can help you.
The Internal Revenue Service (IRS) publishes many of its forms online for free.
The clinic listed herein is partially funded through matching grants provided by the Internal Revenue Service pursuant to the Internal Revenue Service Restructuring and Reform Act of 1998. The partial funding by the IRS does not imply that the clinics have a preferential relationship with the IRS. The decision of whether to use these clinics is your own and their use will not affect your rights before the IRS.