If the IRS Sends You a Bill that You Can’t Pay, What Should You Do?

IRS bills are not cast in stone.

She did it!

Well, for starters, please don’t have a heart attack!

But before we proceed any further, it is very important for you to be cognizant of the fact that many people are receiving threatening phone calls from persons purporting to be IRS officers, stating that they owe outstanding balances. These people are NOT from the IRS! You should hang up the phone immediately, if you receive any of these calls. The IRS does not make phone calls to individuals concerning their personal tax matters; that’s not their method of operation. The IRS only communicates with taxpayers by sending them notices in the mail.

A few years ago, a client of mine received a notice in the mail from the IRS and came to me almost at the point of a nervous breakdown. He had been recently audited by the IRS and subsequently received a tax bill in the mail for an amount in excess of $180,000!

This was indeed a very frightening situation for this client, even though his earning had averaged over $400,000 for the tax years in question. However, because of a significant downturn in the industry he was operating in, and consequently, his current grim financial position, he could not even come up with a small fraction of this amount. I calmed him down a bit by telling him that there is always a solution when dealing with the IRS, and assured him that I would do my best to find that solution.

He had brought in with him several folders containing his tax documents for the tax years in question, and after briefly perusing the documents I quickly realized that something was just not quite right with this tax bill. So I advised him not to panic, but to leave his documents with me for a more comprehensive review.

After doing a detailed comparison, the audit adjustments, and the information contained in his spreadsheets, it was quickly evident that someone had made some very significant errors. Consequently, I decided that we had to go and pay the IRS a visit, so I had him give me a power of attorney to represent him.

I made contact with the IRS, and a couple weeks later, we were sitting down with the officer who had conducted the audit and his manager. After reviewing the audit adjustments together, the audit errors were quickly brought to light and the appropriate adjustments authorized by the manager, who appeared to be quite embarrassed. Within an hour or so, the amount originally assessed was cut in half. The audit officer, who appeared to be a rookie, had apparently done a very poor job.

The first lesson to be taken away from this scenario is that you should always carefully review all audit adjustments the IRS makes, and compare them with your records. IRS officers are also human beings, and can also make mistakes.

The client, however, didn’t walk out of the IRS office with a smile on his face, and understandably so, because he still had to come up with almost $90,000, which he was in absolutely no position to meet, because he was genuinely in dire financial straits at that point in time. So I gathered all the information I could concerning his current financial position and went back to the IRS; this time armed with an Offer in Compromise (OIC).

After a couple of months, the IRS finally accepted his offer, which quite remarkably, was just over $6,000 (calculated based on IRS formula). And to add the icing on the cake, the IRS also agreed to work out a manageable payment plan with him.

Not everyone might be this lucky, but the point is, contrary to popular perception, you can indeed negotiate with the IRS, and if you can prove that you do not have the ability to pay your tax bill in its entirety, chances are they will meet you half way. And the good news is that you don’t have to go to an expensive tax professional or attorney to have them do this for you; this is something you can do on your own at no cost to you. 

Milton G. Boothe
Milton G. Boothe

Milton G Boothe is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the IRS. 

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If the IRS Sends You a Bill that You Can’t Pay, What Should You Do?