An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
16. How to Pay the IRS in Full
I want to give you some tips on how to pay the IRS in full. It seems pretty easy at face value. You write them a cheque. You hand to them and you say, “Thank you. Have a nice day.”
But there’s actually some new answers that I want to go over that you may not be aware of and that may help you in guiding clients towards paying their liability.
The first thing that I would caution you on is that IRS liabilities are somewhat negotiable, particularly the penalty portion of the liability.
If you had a client with a failure to file penalty, let’s say they’ve been assessed a $5,000 failure to file penalty, just asking the IRS to negotiate or abate the penalty, and/or possibly submitting a penalty abatement letter can reduce the balanced owed particularly if the client is going to pay the underlying tax.
If you have a situation where you’re willing to pay the underlying tax, then in a lot of situation the penalties are highly negotiable depending on the circumstances. It’s just one thing to consider.
In general, clients get really defensive about the penalty and interest portion of the liabilities, which can grow severely over time and often exceed the tax portion of the liability. It’s an important consideration to keep in the back of your mind.
The next thing to consider is a lot of clients like to mail checks or do wire deposits through correspondence. Those are great. They do take a while to process, particularly checks that are emailed to the IRS.
If you got a liability or you’ve got some urgency to the situation or literally just trying to save yourself a couple of days of interest, the best way to do it is to walk into your local IRS office and make a payment right on the spot. That will process immediately and that will remove all debt to the IRS.
Also if you do it with a revenue officer, paying them with a check will process a lot faster. One of the advantages of having a revenue officer is they can process payments and move you through the system a little bit quicker than dealing with normal IRS personnel.
Also a thing to consider – which probably your client has not – is that it is far better to pay the IRS in chunks overtime than trying to save up and pay off the full liability.
The reason for that is – let’s say you have a taxpayer who owed $20,000 on April 15th and they wait until October 15th to pay it. Reminder that the tax return extension is an extension of file and not to pay. If the taxpayer pays the full balance on October 15th, they will have occurred penalties and interest from April 15th to October 15th.
If the taxpayer were to make a deposit on April 15th or at least pay some of the liability that will reduce the balance owed which will correspondingly reduce the penalties and interest that are owed on the account.
That’s a really good thing to keep in mind is if you do a pay-as-you-go system, you could often reduce your penalties and interest, even though your intention ultimately is to pay the IRS in full.