Getting that letter from the IRS that says they have assessed an additional tax on your tax return is never pleasant. And quite often, it can be scary. It may be that you claimed a deduction that you were not entitled to, or under reported your income (lots of people forget about a temp job they may have had). But there it is, the letter that says not only do you owe more tax but now there's a penalty and interest accruing.
Don't despair! The IRS does get it wrong too. You may not owe that tax. Or, if you do legitimately owe the tax, there are ways to deal with it that won't leave you broke or having the IRS seize assets.
Determine if the additional tax is legitimately owed. Consult with a qualified tax professional. Here is where you don't want to skimp.
There are tax programs like TurboTax or tax preparation services (like H&R Block) but in my experience, they do not always have the right answer either. If you are low income, there are Low Income Taxpayer Clinics which help taxpayers.
If you cannot reduce or eliminate the tax liability by reassessing your tax return information, then get a taxpayer advocate who can help you in dealing with the IRS. The Taxpayer Advocate is a neutral party that does not prepare or analyze your tax information. Their job is to explain what's being required of you, answer whatever questions you may have, get information for you from the IRS and help you through the process.
Learn about the tax liability payment options. You can make installment payment arrangements to make installment payments to satisfy the debt. You can also make an offer in compromise which can reduce the amount you owe, sometimes significantly. You can also request to be placed in "Currently Not Collectible" (CNC) status. If you have CNC status, the IRS will not take collection action against you. This is a useful tool if you are low income. There are guidelines and requirements you must meet to qualify for these options.
Read the leaflets that come with your tax assessment letter. They explain your taxpayer rights and you should not overlook them. They are there for your benefit. Learn your rights and don't be discouraged. The IRS is not the organization it was decades ago. They have worked hard to develop a kinder, gentler approach to dealing with taxpayers.
- When dealing with an IRS agent, they always provide their agent identification number. Write it down! This is how you can specify who you spoke with if the need arises later on. Take notes on your conversations (why you called, what they said, etc.).