If life has gotten out of control and you’ve received a collection letter or notice from the IRS or Franchise Tax Board (FTB), then you should start here. While debt can be overwhelming and scary, the best thing to do is remain calm and assess your situation before losing even more money on predatory firms. By the time the IRS or FTB has sent you a notice, your mailbox may be full with deceptive offers to resolve your debt from unqualified businesses. I’ll give a quick primer of the collections process here — as an IRS Enrolled Agent (EA), I’ve specialized in tax representation for over 15 years and gone to court and won several of my clients’ cases. Some debt can be paid down easily over time, but if you’re finding yourself overwhelmed and drowning in a mountain of back taxes, it may be time to seek professional advice.

Back Taxes Collections Process

What happens if you don’t pay taxes? The IRS, or FTB, writes to say you owe and you concede the amount. To remind us all that taxes are compulsory and have no say on expenditures, the IRS can prosecute for tax fraud, but courts and jail cost the government money, so trials are uncommon.

The IRS probably jailed actor Wesley Snipes because he publicly advocated for an unauthorized tax shelter, and jailing a public figure quickly discredited the shelter. Criminals may have trouble hiding money and spending it simultaneously, so they get caught and jailed. But rest assured, wages, hobbling liens on property and levies from banks and brokerages—surprise!—are far more common and profitable to the IRS.

Payment Options: Offers in Compromise, Installments, and Debt Relief

Immediate payment makes the IRS go away, but some qualify for one-time penalty abatement or innocent spouse relief. More filers need 2024 IRS payment plans with interest per year of 3% yearly plus the varying federal short term rate. With no agreement, late filing penalties are 5% and payment penalties are 1/2% per month capped at 25% plus ongoing interest of 7% per year in 2025.

Direct debits are mandatory if you exceed a $25,000 debt. For installments over $50,000, fill out Form 9465 and the lengthy form 433-F to post every asset and source of income the IRS might seize. You may be paying for years, and the IRS deal is off if you fail to pay future taxes and estimated taxes. However, making steady payments will keep the levies and IRS at bay, and eventually your debt can be paid off.

But what if your grave is too deep? To avoid liens, harassment, and credit loss, offers in compromise are the last defense before bankruptcy, and they generally can only be won with special circumstances or debts too big to pay in six years—and good paperwork. Be wary of shady firms that claim IRS debt relief when you can’t meet these standards or pay their fees.

Case Studies

• A dentist accumulated IRS debt of $200,000 and then suffered a stroke, which instantly removed his earning capacity. The IRS quickly conceded “Doubt as to Collectability” and let him settle for $6,000.
• A military wife lost her husband to suicide. The husband had amassed $120,000 of IRS debt and a $150,000 life insurance policy. She could pay the IRS, but that would leave her nothing to start a career and raise her kids. So I argued that she had “special circumstances” where full payment would cause “economic hardship.” The IRS agreed to an $8,000 settlement: recovery with child raising followed.
• A realtor had a portfolio of five rental houses. Misfortune found him by way of a drug addiction, and brought him down in decreasingly coherent tax returns. He sold rentals, then his personal home and moved to the Philippines where elderly parents helped him recover. I was hired to redo 12 years of botched tax returns and discovered a quarter million dollars of taxes not really owed. For the extra $600,000 tax debt, the realtor settled for pennies on the dollar. A few years later, he was able to restart his realtor career with a solid financial foundation.

Bankruptcy

Bankruptcy will likely wreck a person’s credit for at least seven years, making it hard to get houses, rentals, cars or even jobs. Yet our government has granted debtors mercy when they believe they can never repay debts. File for bankruptcy and be ready to list assets and debts at length and to endure lengthy, costly and humiliating procedures. You must have filed four years of tax returns and be prepared to file on time into the future.

Generally, the IRS audits and takes collections from returns filed in the last 10 years. But I once prepared a 23-year-old return from someone who failed to file. Filing starts the clock ticking. Pending installment agreements, offers in compromise and bankruptcy can delay IRS collections and the clock. Filers who did not pay might be able to run the clock out or otherwise prove debts “collectible.”

Living under the table means living at risk of being caught and incapable of building wealth with real estate loans or well-reported securities. If you can’t pay on time, be proactive and consider consulting with a tax professional.

A Way Forward

With over a decade of experience in tax representation and my tax law expertise, I’ve won both the trust of my clients and many of their cases. Let me help you pay down or abate excessive IRS, FTB, and county property tax claims.

I specialized in tax representation for my former firm, Dunham Associates CPAs, where I argued cases to the courtroom door and won.  Additionally, I studied tax research and tax representation at Golden Gate University and hold a fellowship in tax representation from the National Association for Enrolled Agents. I know the intricacies of IRS and FTB offers in compromise and installment agreements, and regularly handle the paperwork and tax agency correspondence needed to save delinquent businesses and keep owners solvent. 

If the tax collector is knocking at your door and you’re ready to regain control of your life, let me be your champion.