I Owe the IRS Money. Now What?

Suppose the IRS sent you a letter a couple of years back indicating that you owed money to the IRS. At the time, you didn't know what to do and missed the deadline. This year you are entitled to a refund, but the IRS is going to take it. You were going to fix your car or maybe catch up on your utility bills with the refund. Is there anything you can do?

There may be a solution. The IRS has a process called audit reconsideration. If you get a collection notice from the IRS and think you do not owe the money, you could request an audit reconsideration, even if you have missed all the deadlines they gave you.

Examples of someone who might want to ask for an audit reconsideration:

• You claimed the earned income credit in 2022. Now, the IRS says you should not have claimed the earned income credit because the children did not live with you during 2022. If you have proof that the children lived with you, you can submit the proof and ask for a reconsideration.
• You did not file a tax return in 2023. The IRS filed a return for you, as a single person with no dependents, using the W-2's it got from the Social Security Administration. You were actually the head of your household with two children. Instead of owing taxes, you would be entitled to a refund, if the IRS used the head of household standard deduction and dependents exemptions.

To ask for an audit reconsideration, you will need to send a letter to the Internal Revenue Service Center. In the letter, explain to the IRS why you think they are wrong. You will also need to send documents and proof that the IRS is wrong. The letter should be sent to the IRS Campus that performed the original audit on your return. Look at the letter from your audit. If you can not find that information, you can call the IRS at 1-800-829-1040.

What if the IRS is right about the debt but you just can't pay?

There may be a solution.

• If you can pay the whole amount, but just not right now, you can ask for an installment agreement with the IRS. This would give you more time to pay back the debt.
• If the debt is just too large for you to pay in full, but you can pay part of what is owed, you can fill out an application for an offer in compromise. The IRS charges an application fee of $205 unless you are eligible for low income certification. You offer what you think you can pay. The IRS will look at all your expenses, income and assets and decide whether your offer is reasonable.
• The IRS can also place a taxpayer in "currently not collectible" status. The IRS can, however, reactivate your account at any time.

Iowa Legal Aid has a Low-Income Taxpayer Clinic. Call 1-800-532-1275 (se habla español) for more information about how to get free tax help. If you have not been able to resolve your problem with the IRS or you face a significant hardship you can also call and request assistance from the Taxpayer Advocate 1-877-777-4778.