Many times people don’t have a clue how much they owe the IRS.  In fact, they believe it is so much that if they even call to inquire the IRS is just going to carry them off to debtor’s prison.  And you can forget going to the local IRS office in person to see how much you owe because then you are just handing yourself over to them on a silver platter – right?

Absolutely not.  There is no debtor’s prison and just owing the IRS money is not a crime.  In order for you to make an informed decision about how to resolve your tax issues you need to know how much you owe and the breakdown of that debt by tax, penalties and interest.

You also need to know how much you owe so you can make a decision on how you are going to deal with your IRS debt.  Should you just enter into a payment plan or would an offer in compromise serve you better?  You can’t make a decision without knowing how much you owe.

The way to do this is by getting a record of account from the IRS.  A record of account reads like a bank statement or a bill from your power company.  It will show how much you owe, when penalties and interest were assessed against you, and what payments have been made on your behalf.

So how do you get a record of account?  There are three main ways:

1. Going to your local IRS office in person and requesting this information;
2. Calling the IRS and requesting this information;
3. Mailing a completed Form 4506-T requesting this information.

You can visit the IRS’ website www.IRS.gov to find the most up-to-date version of this form.

This information will be helpful while planning your offer in compromise so you can make sure you are getting a good deal with your offer in compromise.

Related posts:

1. Can You Go to Jail When You Owe Back Taxes?
2. Steps to Filing an Offer in Compromise: Step 1 – Filing Back Tax Returns
3. Is My Offer in Compromise Based on How Much I Owe?

Sounds great, doesn’t it?  So where do you start?  The first thing you need to do is make sure all of your tax returns are filed.  People that owe the IRS significant amounts of money tend to have messed up one year and then they were too scared to file the next year for fear that the IRS would find them or come after them.  But, before the IRS will begin to work with you and consider your offer in compromise, you must have your tax returns filed for at least the last six years and you must be current on your current taxes.  That means, if you should be paying estimated taxes – you should have paid in the correct amount depending on how far through the year we are.  Make sense?

So, I can hear you asking the question: it has been so long since I have filed my income taxes.  I don’t have any of my financial records for those years.  How can I prepare my returns without my W-2′s and 1099′s?

Good question: You may request a printout from the IRS giving you all of the financial information sent to the IRS on your behalf.  You can request that for as many years as you need (currently the IRS records only go back as far as 2000 – financial information for years earlier than that are no longer available).   You then use this financial information to prepare your income tax returns (or more preferably, you hand the forms over to your accountant to prepare your returns for you).

Where do you get this information?  Head on over to the IRS website and download Form 4506-T.  You can also call the IRS or visit your local office if you need to get the information really quickly.  Otherwise, when you mail in Form 4506-T it is going to take them a couple of months to get the information to you.  Check out the video below to show you where to go to get the income information you need.

So get those tax returns prepared and then we will move on to step 2: finding out exactly what you owe the IRS.  See you then!

Related posts:

1. Filing a Return when You Have No Money to Pay
2. Should You Prepare Your Own Tax Returns
3. Adding 2008 Tax Liability to an Offer in Compromise