Tax Debt? Myths and Facts About Owing Money to the Internal Revenue Service

First of all, IRS agents are not boring. I mean, yes, forms are boring. But most agents are cool people.

Are you facing tax debts and worried about the consequences? Don’t let myths cloud your judgment. Let’s debunk some common misconceptions and shed light on the facts about owing money to the Internal Revenue Service (IRS).

Myth 1: “I can evade taxes without repercussions.”

Fact: The IRS has robust systems in place to detect tax evasion. Ignoring your tax liability can lead to penalties, interest, wage garnishments, and even legal action.

Myth 2: “I don’t have to pay my tax debt in full, I can just settle it.”

Fact: The IRS has standards they must follow, and those guidelines are in place to prevent further financial hardship when structuring the repayment of your tax debt,  therefore, yes they do offer various payment plans, including one time settlement agreements, and hardship statuses when resolving debt with taxpayers, HOWEVER, the final agreement will be based on your current net worth, income and expenses.

Myth 3: “Tax debt settlement is impossible.”

Fact: The IRS offers a program called Offers in Compromise (OIC) that allows eligible taxpayers to settle their debts for less than the total amount owed. However, the eligibility criteria are stringent, and it’s best to consult a tax professional for assistance throughout the application process.

Myth 4: “Being bankrupt clears my tax debts.”

Fact: While bankruptcy can help with certain debts, it does not eliminate tax liabilities. Speak to a tax professional to explore your options.

Common Myths About the Internal Revenue Service

Are you feeling overwhelmed by your tax debt? You’re not alone. Many people have misconceptions about the Internal Revenue Service (IRS) and how to handle their tax liabilities. In this article, we will debunk some common myths and provide you with accurate information that can help you navigate your tax situation more effectively. From thinking you can evade taxes without repercussions to believing tax debt settlement is impossible, we will uncover the truth and offer insights into the options available to taxpayers. So, let’s dive in and debunk these myths about the IRS.

Filing your taxes takes money. False: You can file taxes for free

The truth is that economic hardship doesn’t stop you from fulfilling your tax obligations. Here’s how:

1. IRS Free File: If you earned $73,000 or less in 2022, you have the option to use IRS Free File. This service provides you with online software from approved providers, making it easy to prepare and file your federal tax returns electronically at no cost. Simply visit IRS.gov and choose a provider that suits your needs.
2. Free File Fillable Forms: Regardless of your taxable income level, Free File Fillable Forms are available for anyone who prefers to prepare their own taxes. These online forms offer a digital way to complete your tax returns, doing away with the need for paper and mailing. This option is ideal for individuals who are comfortable navigating the tax preparation process on their own.
3. Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE): If you prefer an in-person approach or need assistance with your income tax forms, check if you’re eligible to receive help from VITA centers or TCE. These programs offer free tax preparation and e-filing services by IRS-certified volunteers. They cater to individuals with low to moderate income, persons with disabilities, non-English speakers, and those aged 60 or older.

Filing your taxes shouldn’t drain your monthly income; it’s all a matter of knowing your options. Don’t let the misconception that filing taxes requires money deter you from fulfilling your tax obligations. 

April 15 is the final deadline for annual tax returns. False: You can get an extension

Did you know that April 15 is not always the final deadline for filing your federal income tax returns? Contrary to popular belief, you can actually get an extension if needed. This year, the deadline for filing your tax returns is April 18, 2023, due to April 15 falling on a weekend. However, if you still find yourself needing extra time beyond April 18, you can request a filing extension from the IRS.

Obtaining a filing extension is a straightforward process. You simply need to fill out Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return,” and submit it to the IRS by the original due date of your tax return. No explanation or specific reason is required to request an extension, as long as you provide accurate information on the form.

It’s important to note that an extension only grants you additional time to file your tax return, not to pay any taxes owed. If you anticipate owing taxes, it’s still in your best interest to estimate and pay as much as possible by the original due date to avoid potential penalties and interest charges.

Extensions Give You More Time to Pay Your Tax Bill. False: Extensions are for filing deadlines.

When it comes to filing your taxes, it’s essential to understand the purpose of filing for an extension. Many people mistakenly believe that an extension grants them extra time to pay their tax bill, but this is not the case.

Filing for an extension with the IRS allows you more time to gather and organize your tax paperwork and file your tax return. It can provide some much-needed stress relief if you’re unable to meet the original filing deadline. However, it’s crucial to remember that an extension does not give you additional time to pay any taxes you owe.

If you expect to owe taxes, it’s essential to estimate and pay as much as possible by the original due date to avoid penalties and interest charges. Failing to pay your federal taxes on time can lead to financial consequences, including additional fees and growing interest. It’s best to set up tax payment options and address those unpaid taxes promptly to minimize these potential penalties.

So, while filing for an extension can buy you a longer time period to file your tax paperwork, it does not offer an extension on paying your federal tax debts. Make sure to accurately estimate your taxes owed and prioritize timely monthly payment to avoid any unnecessary costs.

Tax Preparers Take All the Liability. False: You’re Responsible, Too.

When it comes to filing your taxes, it’s important to debunk a common misconception: tax preparers do not take all the liability for your annual tax return. While tax professionals play a crucial role in helping you navigate the complexities of the tax system, it is ultimately your responsibility to ensure the accuracy and completeness of your tax return.

Choosing a qualified and reputable tax preparer is crucial. Consider their credentials, experience, and track record. However, even with an experienced tax preparer, it is essential that you review the tax return before signing it. Take the time to carefully review the information provided, ask questions, and address any concerns.

It’s important to remember that regardless of whether you hire an accountant or prepare your taxes yourself, you are responsible for the information on your tax return. If there are any mistakes or omissions, the IRS can hold you accountable, and you may face penalties and interest.

Taking personal responsibility for your tax return is key to avoiding potential problems with the IRS. Stay engaged in the process, provide accurate information, and double-check for any errors or inconsistencies.

Pay More for a Better Offer in Compromise. False: It’s a Scam

If you have tax debt and are considering an Offer in Compromise (OIC) to settle your IRS tax debt, it’s essential to be aware of a common myth: the idea that you can pay more money to get a better compromise is false and can be considered a scam.

While it’s true that the total cost of an OIC can vary depending on factors such as the application fee, initial payment, offer payment, and any tax lawyer fees, paying more money does not guarantee a better outcome. The acceptance of an offer in compromise is determined by strict qualification requirements and the IRS’s assessment of your financial situation.

The IRS evaluates your ability to pay the tax debt based on your income, expenses, assets, and overall financial situation. Simply offering more money without meeting these criteria will not necessarily result in a successful OIC.

It’s important to be cautious of any companies or individuals who claim that you can pay more money for a guaranteed OIC approval. The reality is that the IRS carefully assesses each OIC application, and the decision is based on your specific financial circumstances, not the amount of money you offer.

If you’re considering an OIC, it’s advisable to consult with a qualified tax professional who can guide you through the process and help determine if it is the right option for your situation.

Remember, paying more for a better OIC is a false notion and should be treated as a scam. Focus on meeting the necessary requirements and providing accurate financial information to increase your chances of a successful OIC application.

Tax Debts Make You a Target. False: IRS Protects Taxpayer Privacy,

It is a widespread belief that owing the IRS makes individuals a target and that their personal information will be exposed. However, this is a false notion.

The IRS is dedicated to protecting taxpayer privacy, and stringent privacy safeguards are in place to ensure that your personal information remains confidential. They are bound by strict federal laws and regulations that govern the use and disclosure of taxpayer information. Rest assured that your tax debt does not make you a target for public exposure.

Furthermore, it’s important to note that the IRS primarily communicates with taxpayers through mail. They will send correspondence regarding your tax debt to the address they have on file. This helps maintain your privacy and ensures that sensitive information is not shared through less secure means.

However, it is important to be aware that the IRS has the right to file a Notice of Federal Tax Lien if you have an unpaid tax debt. This is a legal document that alerts creditors of the government’s legal right to your property. It serves as a public notice that the IRS has a claim against your assets. While this can impact your creditworthiness, it does not mean your personal information will be widely exposed.

What to Do If Your Tax Liability Is Greater Than You Can Pay

If you find yourself in a situation where your tax liability is greater than you can pay, it’s important to take immediate action to address the issue. Ignoring your tax debt can lead to serious consequences like hefty fees, accruing interest, wage garnishment, and a negative impact on your credit score.

One potential option to explore is an Offer in Compromise (OIC), which allows you to settle your tax debt for less than the full amount owed. This can be a viable solution if you can demonstrate that paying your tax debt in full would create financial hardship.

Another option is to set up a repayment plan with the IRS. This allows you to pay off your tax debt in monthly installments based on your financial situation. The IRS offers various payment plans to accommodate different taxpayers’ needs.

Taking action and addressing your tax debt is crucial to avoid further financial repercussions. By exploring options like the Offer in Compromise or setting up a repayment plan, you can work towards resolving your tax liability while minimizing the impact on your financial well-being.

Remember to consult with a tax professional who can guide you through the process and help you choose the best course of action for your exceptional circumstances.

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