A reader's "idiot cousin" got him into tax debt. What can he do about the IRS — and his idiot cousin?

2 minute read

Question: I just got a letter from the IRS saying me and my wife owe $12,000 in back taxes — from three years ago! That’s when we started our business and had my wife’s idiot cousin do our accounting and taxes.  He only did it for a year because he got arrested for a DUI.

So here are my questions:

  • Why did this take three years?
  • What do I do now? Our business is gone and we don’t have six large lying around.
  • Since this was the idiot cousin’s fault, can we send the IRS after him?
  • Do we need a lawyer? Is the IRS going to lien our house?

Help me out here, I’m freaking out. 

— Stan in Maryland

Howard Dvorkin CPA answers…

Let’s start at the end and work our way back to the beginning. First, don’t freak out.

When you think of the IRS, you don’t often conjure up images of helpful people. However, if you go to the IRS web page, What You Need to Know if You Get a Letter in the Mail from the IRS, here’s what it says under the very first item…

1. Don’t panic.

Believe it or not, the IRS isn’t out to get you. It just wants to get paid. So it will actually work with you. The horror stories of the IRS seizing houses to settle back taxes? Those usually neglect one key fact, summed up in this Debt.com explanation of federal tax liens

Usually, the IRS will only place a tax lien when no effort has been made to resolve a tax debt, despite the numerous letters and notices they have sent.

Even then, you’ll receive a warning that a lien is coming, and you’ll have 30 days to resolve the situation. Since you recently received this letter, you’re in no danger of this nuclear option right now.

Thankfully, “resolving the situation” doesn’t have to mean paying your entire balance on a moment’s notice. As you say, Stan, you don’t have $6,000 laying around. Many people don’t, and the IRS knows that.

That’s why the IRS offers installment agreements. Basically, you pay back the IRS monthly, just like you do a mortgage or credit card balance. Of course, you’ll pay penalties and interest on those installments, so the more you can afford to pay, the less you’ll owe in the end.

As for hiring an attorney, that depends on the complexities of your situation. If you seek what’s known as tax debt consolidation or an offer in compromise, the paperwork can be daunting. However, I’d follow the directions on the IRS letter first and see if you can work out a payment plan that doesn’t kill you.

Finally, about your idiot cousin.

The IRS holds you, and only you, responsible for your tax return. That’s why you sign it — because you’re supposed to review it. In the future, stick with professionals who have a long track record and excellent reviews. Idiot cousins may seem a cheaper alternative, but as you’ve learned, they can cost you later.

Have a debt question? Can’t find what you need to know? We can! Submit any debt or finance question you have, and we’ll tap a pro who will respond as quickly as possible.

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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.

Published by Debt.com, LLC