Don’t Panic: Tax Resolution Firms Can Help with IRS Back Taxes

Andrea Miller

Expert Contributor
Last Updated: December 9, 2021

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If you owe unpaid back taxes to the IRS, tax resolution firms can help you negotiate a settlement or a payment plan that makes your IRS tax debt more affordable. These firms are typically run by tax attorneys or certified public accountants (CPAs) who have the knowledge, experience, and authority to work with federal and state tax authorities on your behalf.

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1 Services Provided by IRS Tax Debt Resolution Firms

2 IRS Tax Relief Programs

3 Questions to Ask When Choosing a Tax Resolution Firm

4 Tax Attorney vs. CPA: What’s the Difference?

5 Dos and Don’ts if You Owe Taxes You Can’t Pay

Services Provided by IRS Tax Debt Resolution Firms

Tax resolution firms work with individuals and businesses to resolve complicated tax issues. They provide a range of services which typically include:

Negotiating penalty abatement, in which associated penalties are removed from your past-due tax balance. This is significant since these penalties can add as much as 25 percent to your total unpaid tax bill.
Negotiating an installment payment plan with the IRS.
Negotiating an offer in compromise, in which the IRS or state tax authority agrees to settle your tax debt for less than the total amount that you owe. However, in most cases, the amount you offer must be equal to your total net worth, so it’s important to engage a qualified tax attorney to advocate on your behalf if you go this route. The IRS has a free online tool that you can use to pre-qualify for an offer in compromise. You can also get started on this process by submitting IRS Form 656 along with an application fee of $186.
Suspending your tax debt if you are unable to pay the money you owe without experiencing substantial economic hardship, such as the inability to pay your mortgage or afford transportation

IRS Tax Relief Programs

The IRS offers several free programs to assist taxpayers who are struggling with unpaid tax debt. Although you are certainly able to work with the IRS independently through these programs, tax resolution firms have unmatched experience in navigating these often complex systems and helping you provide the necessary information to qualify.

One such program is the IRS Fresh Start Initiative, an installment program that allows you to pay back your tax debt over time instead of all at once. Through the Fresh Start Initiative, you can also negotiate an offer in compromise. This requires you to prove that you cannot pay the full amount of your tax debt and that the requested settlement amount is the highest amount that could successfully be recovered from you by a collection agency.

You can also work with the IRS through the Taxpayer Advocate Service, which is free for all U.S. taxpayers and provides you with representation on IRS matters. They strive to uphold your rights with the IRS, including the rights to information about your case, to have representation, and to challenge and appeal your case.

Don’t Panic: Tax Resolution Firms Can Help with IRS Back Taxes

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Questions to Ask When Choosing a Tax Resolution Firm

Unfortunately, many tax relief firms prey on those who feel the pressure of the substantial debt they owe. You have likely received mail from companies offering to settle your tax debt for a fraction of what you owe, but be aware that many of these businesses are not legitimate. Do not give money or personal information to any tax relief firm until you’ve fully vetted their qualifications, including their status with the Better Business Bureau.

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Call the company to learn more about their credentials. Find out what their services entail, how many years of tax relief experience they have, the training and certifications their representatives have, and how many years they have been in business. In general, the longer a company has been in business, the more likely that it is a reputable firm. You should also make sure that the representatives have the credentials required to negotiate with the IRS on your behalf. This includes those who are tax attorneys, CPAs, and/or enrolled agents with the IRS.

The answers to these questions can help you determine whether a specific firm is a right fit to help you negotiate a settlement with the IRS.

How long does the IRS tax debt resolution process take? The answer to this question depends on whether you are up to date on filing your returns. If you have filed taxes every year but are unable to pay the back taxes you owe, the firm should be able to resolve your case within three to four months. If you have not filed past-year returns or if your case is more complex, resolution can take between nine months and one year.
What documentation will you need to get started? The firm should request both your tax records for the years for which you owe back taxes and your financial data such as paychecks and bank account statements. This will help the firm determine your reasonable collection potential (RCP), which is the amount the IRS can reasonably expect to collect from you without causing undue financial hardship.
What if I don’t have my old tax documents? Many people delay seeking resolution for their tax issues because they don’t have the paperwork they need. Fear not: a reputable firm will be able to collect these documents on your behalf as needed.
How much does your service cost? Look for an IRS tax debt resolution firm that offers a free no-obligation consultation before taking on your case. It’s important to find a firm that charges only a flat fee rather than a percentage of your IRS debt or other additional fees.
Who will handle my case? Make sure that the person you initially work with will be responsible for your case throughout the process. Some firms hand the work off to an assistant after the initial consultation.
Can you represent me at an IRS audit? If you are being audited by the IRS, the firm that is helping you resolve your IRS tax debt should also be qualified to work with the IRS on your behalf during the audit process. In fact, in many cases, you don’t even need to be present.

If a tax resolution firm you’re interviewing avoids answering questions or provides only vague information, consider that a red flag. Avoid working with a firm that requires you to pay a steep retainer before working on your case.

Tax Attorney vs. CPA: What’s the Difference?

Many tax resolution firms employ both CPAs and tax attorneys. While both these professionals have tax law expertise and the legal authority to represent you in official IRS negotiations and proceedings, they do have different specialty areas.

Attorneys who specialize in tax law keep up with the extensive, ever-changing tax code and will be able to apply the appropriate laws to your tax situation. Tax attorneys assist with matters including, but not limited to, estate planning, trusts, business and corporate taxes, and tax disputes.

However, an effective tax attorney not only needs intimate knowledge of the law but also the ability to negotiate on your behalf, both before the IRS and in the court system if necessary. If you hire a tax attorney to help resolve issues with unpaid taxes, they will analyze your complete financial picture and other material facts to build a case that supports your best interests.

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Though tax attorneys have extensive tax law knowledge, they typically do not prepare tax returns or provide advice about deductions, exemptions, credits, and tax planning. You may want to hire a tax attorney if:

You’re starting a new business and need advice about the most advantageous tax structure.
You need tax treatments or contracts for international business.
You are facing criminal charges from the IRS or your state tax authority.
You are planning to file a lawsuit against the IRS.
You need attorney-client privilege because you have committed tax fraud or another tax-related crime.

Your attorney cannot be forced to testify against you in court or provide details to your case to anyone.

A CPA specializes in helping individuals and business owners plan for, maintain, and prepare their finances and taxes. This includes preparing annual tax returns and submitting them to the IRS, ensuring that you comply with the tax code, amending tax returns that have errors, and helping you file overdue or prior year returns.

Like tax attorneys, CPAs can also represent you during IRS negotiations, audits, trials, and hearings.

When a CPA has five or more years of experience working with the IRS and has developed a thorough knowledge of and expertise in application of tax code, he or she can become an enrolled agent (EA) by passing a certification test. An EA specializes in assisting with complicated legal matters associated with the tax code. Although an EA can also represent you with the IRS, they primarily identify required forms that you may not have submitted with prior year returns. Even if these forms were not filed in error, they may change the amount of federal or state taxes you owe.

Dos and Don’ts if You Owe Taxes You Can’t Pay

Many individuals avoid filing their taxes because they suspect they will owe more than they can afford to pay. Others file their returns on schedule but are unable to pay the amount due. While a staggering tax bill can be scary, ignoring the problem won’t make it go away — it will actually compound it with additional interest, penalties, and fees. In addition to working with a tax resolution firm, you have options if you owe state or federal back taxes:

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If you were unable to pay because of hardship such as job loss or illness, write to the IRS and ask for an abatement of penalties and fees. This will reduce your IRS tax debt to the actual amount owed and eliminate late fees that can equal up to 25 percent of the past-due amount.
If you owe less than $25,000 and can prove that you do not have the money to pay the tax due now but will be able to pay it off within three years, the IRS must grant you an installment agreement. You can request installment payments for your IRS tax debt by filing IRS Form 9465, Installment Agreement Request.
If you think you may be able to pay your taxes within 120 days, you can apply for a short-term extension that does not carry fees.
Keep in mind that if you do not pay your IRS tax debt, future refunds will go toward this debt.
While you may be tempted to pay your tax debt with a credit card, make sure you check the interest rate on the card before taking this route. In many cases, it pays to try to work with the IRS to request an installment agreement first since it typically charges a much lower interest rate than any credit card company.
Avoid withdrawing money from retirement accounts to settle your IRS tax debt. When you withdraw from these accounts before a certain age, you will owe taxes and penalties that will diminish the amount you are able to withdraw.
Don’t avoid filing if you suspect you have IRS tax debt. The IRS charges a steeper monthly late fee if you have not filed your return than it does if you have filed your return but not yet paid taxes due. You’ll also be charged interest on both the unpaid taxes and the accrued late fees.
Consider changing your withholding amount so you are less likely to owe taxes in the future. You can easily do this by submitting a revised Form W-4 to your employer. You can also make estimated tax payments throughout the year by using Form 1040-ES, Estimated Taxes. When you file your return, the IRS will suggest an amount for your estimated quarterly payment for the upcoming tax year. You can also estimate the amount you should withhold by using the IRS Withholding Calculator online.

Above all, if you have IRStax debt, don’t panic. The agency is typically willing to work with you and wants you to pay whatever amount you are able to afford. Hiring a tax resolution firm or tax attorney to negotiate with the IRS on your behalf can help alleviate your anxiety and fear about this process. Being proactive about your IRS tax debt keeps your options for payment open and prevents expensive compounded taxes, fees, and interest that can multiply the amount you owe.

Andrea Miller

Expert Contributor
Last Updated: December 9, 2021

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