What to do when in Tax Trouble with the IRS?

By | March 3, 2015

Tax Problem: It’s 2015. For the last five years, I’ve been taxed at Single no Exemptions, and levied on top of it for the missing years. Having learned from my mistake, I filed in 2012 for 2011, 2013 for 2012, 2014 for 2013, and watched what would be the refund from my W4 (and going to college) get intercepted for the missing years. When I file for 2014 this month, I expect the same thing’s going to happen. Unfortunate, but it is what it is.


Local Taxpayer Advocate

Is the Local Taxpayer Advocate a better idea than the private companies? Or is there a specific office in the IRS I should contact? I’m not trying to find a magic “Get Out Of Debt Free” fairy. I didn’t know I was fucking up at the time, but I fucked it up, big time, and I just want to know the best way to make this right, and put it behind me.


Getting out of trouble with IRS

1) Did you ever file the missing returns? The IRS systems automatically assume Single with the standard deduction. If you had any mitigating items (educational fees, student loans, business expenses, IRA contributions) then the amount may be lower.

2) Get on a payment plan – maybe. Having an installment agreement will reduce the compounding penalties, but sometimes you have to agree to extend the statute of limitations.

3) Request a penalty abatement for one of the paid-off years. May be a drop in the bucket, but having those 100% – 200% penalties applied to your open balance instead may move things along

4) File an offer in compromise. You can do it yourself or have a professional, but as you said the papermills that advertise on the radio are usually not worth the fees they charge you. IRS will consider your current income and expenses to determine your disposable funds, and base your repayment on what they would be able to collect before the statute of limitations runs out.

The taxpayer advocate is a powerful tool for an individual, but you need to have something to aim them at. Give them a call and ask them what they would recommend in your situation, and what they could help you with.


Legal Aid Clinic

See if your local Legal Aid has a Low Income Taxpayer Clinic. They can often help.

  1. Did the IRS do the actual returns for you, and assess the income?
  2. How much do they think you owe?
  3. Do the numbers they put in look right?
  4. This is a good overview. You basically need to read all of this: http://www.nolo.com/legal-encyclopedia/back-taxes-debt