Many people breathe a sigh of relief when tax season ends, and file all of their paperwork until the following year. So when individuals receive an unexpected letter from the Internal Revenue Service alleging that they owe an outstanding balance and may be facing penalties and interest, some may go into a panic and be unfamiliar with how to proceed. While this situation can certainly be unsettling initially, there are simple channels to go through that may help taxpayers get to the bottom of the issue and resolve it quickly.
The first step may be to contact either a tax professional or the Internal Revenue Service. Working with a licensed professional can be especially prudent for those who filed their taxes themselves. A tax preparer can review the inquiry the IRS sent, help individuals make sense of the details and come up with a plan of action. In some cases, the IRS may be correct if individuals are not able to provide supporting information for tax breaks they claimed or if they made errors in their calculations. In other instances, the IRS may simply not have received all the information they needed to make their determinations.
The faster this process is completed, the better position a person may be in, as the IRS may be more willing to work with someone who is proactive and eager to meet their obligations. Many people may be fearful that the IRS will only work to collect any money they are owed and potentially levy the highest penalties they can, but most agents understand that honest mistakes happen, and are willing to help taxpayers reach a solution.
Explore payment options
If individuals find that they are in fact in the wrong and owe a substantial balance, they may qualify for payment plans with the federal tax agency. For example, the IRS offers an installment payment plan that allows individuals to make affordable payments each month until their principal balance, penalties and interest are paid off. In cases where taxpayers owe a more substantial sum, they may qualify for an offer-in-compromise. This agreement, if approved, allows them to pay a smaller sum than the full balance that is actually owed. However, in order to participate, consumers must be able to demonstrate significant financial hardship that is documented through several financial and bank statements. It may be helpful to speak with a tax preparer first to determine eligibility if taxpayers choose this course of action.
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