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.
