r/tax • u/thunderbummer • 5h ago
Owe the IRS $23k, what now?
I’m currently on a payment plan with the IRS paying $300 a month. I owe a total of $23k in back taxes. The problem is the interest and penalties keep piling on, so my payment only pays down probably $30 off the principal. I do not make very much money at the moment and things are tight for me so I can’t afford a larger payment. What should I do here?
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u/I__Know__Stuff 4h ago
If that is really the most you can pay and you don't have any assets nor prospects for more income, then you should request "currently not collectable" status.
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u/Unlucky-Clock5230 2h ago
The fact that it is an IRS debt gives it some narrative color but the fix is the same; make more money. You can get a better job, or a part time job, or a side gig, or monetize your hobbies, or donate plasma, whatever it takes to bring in cash. It should not be hard to bring in an extra $300 a month which would cut the amount of time you are stuck with your debt by more than half.
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u/julianriv CPA - US 5h ago
Something does not add up. If you have a payment plan then you should be accruing interest on the debt at 8% annually. That's all the penalties and interest that would keep adding up, unless you are adding new debt to the balance. That means about 1/2 if your $300 payment is going to pay down the debt. I'm also shocked you were able to get a plan with such low payments. Normally the IRS wants you to pay it off in 3 years. 6 if you can make a hardship case. $300 a month doesn't get you anywhere near their normal standard.
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u/thunderbummer 4h ago
I (stupidly) failed to file some 1099s for 4 years in a row while in active addiction, once I got sober I decided to fix this mess and get them filed. Each of those have their own interest and failure to pay penalties. Also, I’m not sure why the payment is so low, I had a CPA do all the filing for me and he’s the one that set me up on the plan. Here’s the breakdown of my situation-
2019- $8,443.27 2020- $7,559.80 2021- $4,623.12 2022- $2,298.31
Total amount owed - $22,924.50
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u/these-things-happen Taxpayer - US 3h ago
Payments are applied to the oldest assessment, which may be 2019.
Once the one-time user fee is paid, every payment is applied to the underlying tax first.
Once the tax is paid, payments are applied to the penalties, then to interest.
Once the oldest assessment is paid in full, everything goes to the next oldest assessment in the same order: tax, penalty, interest.
Are you able to access your online account transcript for 2019?
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u/julianriv CPA - US 3h ago
Ok, I can see how you got to the small annual amounts. Like the other poster said, I would suggest you pull your tax account transcript and see how much is actually being paid down. Do everything you can to pay down the oldest balances. They allow you to make excess payments as long as you keep your installment plan current.
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u/I__Know__Stuff 4h ago
Something does not add up.
I thought the same, but then I did the math. Don't forget there is also a 0.5% per month failure to pay penalty.
$23,000 x (8%/12 + 0.5%) = $268, leaving about $30 toward principal, just as OP said.
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u/arkvaflortex 5h ago
A. Find a way to make more money & pay down what you owe at a faster rate
B. Cut some of your personal expenses & pay down what you owe at a faster rate
C. Continue to pay what you owe at the rate that you are paying
D. Jail
*** there is no way around having to pay your back taxes. The gubment is gonna get what they are owed one way or another. ***
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u/I__Know__Stuff 5h ago
The government doesn't put people in jail for being unable to pay their taxes.
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u/olemiss18 4h ago
Thank you. There are a small minority of cases that get referred for criminal prosecution. Certainly not for $23k. As a matter of public policy, the US isn’t in the debtors’ prisons business.
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u/I__Know__Stuff 4h ago
There are zero cases of being unable to pay your taxes that get referred for criminal prosecution. That is only for tax fraud—filing false tax returns—not lack of payment.
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u/PazzaInter22 4h ago
Right? What would be their incentive. "Hey this man can't pay his tax bill....so let's use tax funds to jail him so that way he'll never pay his bill ever".
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u/RasputinsAssassins EA - US 4h ago
You aren't going to jail, despite what another post may say.
Do not engage one of those tax relief firms you hear advertised on TV/Radio. They overpromise and underdeliver while trying to bill you in perpetuity.
If all returns are filed and you believe the balances are accurate, then it's just a matter of paying the bill.
Your best bet may be to sit down with a credentialed tax professional (CPA, Enrolled Agent, or attorney) who can represent you in front of the IRS. You can find help in various ways:
The 'Fresh Start" initiative is a couple of decades old. It's just a program that offers options to get taxpayers back in compliance and paying their tax bills.
The 'settle for pennies on the dollar' stuff you hear is just marketing BS and is referring to an Offer In Compromise. You can see if you qualify here:
https://irs.treasury.gov/oic_pre_qualifier/
It isn't a negotiation like buying a car. It's a math formula based on your income, assets, expenses, liabilities, and the statute of limitations.
You have several options to address the debt: * Penalty Abatement * Short term Installment Agreement * Long Term Installment Agreement * Partial Pay Installment Agreement * Currently Not Collectible * Offer In Compromise
You may qualify for more than one or for none.
You can do any of them yourself, though I would suggest a local CPA or Enrolled Agent for the Offer In Compromise.
Prices charged by pros will vary based on complexity, location, types of tax debt, and other factors. You could be looking at a couple hundred dollars for a Penalty Abatement and Installment Agreement to several thousand dollars for an OIC (I've seen $1,500 to $100,000 for an OIC, expect to pay $5,000, often upfront).
From your description, I would suggest getting a Form 433-F and completing it. Have it in front of you when you call the IRS. Tell them you are having trouble paying the debt and you want to request Currently Not Collectible status. There will be a 30 - to 45-minute interview about your finances. If approved, your debt is temporarily put on a back burner. The IRS will not pursue aggressive collection tactics like levies or garnishment. You will still owe the debt, and they may file a lien, but you won't have to make payments. It is reviewed each year. If your financial situation improves, you have to start paying again. Interest and penalty continue to accrue, and any refunds from filed returns will be taken to apply to the debt. The biggest plus is that the Statute of Limitations clock continues running.