The moment you realize you owe more tax than you can pay is genuinely frightening. The notices are stern, the numbers feel impossible, and it’s hard to know what to actually do first. The good news is that resolving tax debt follows a knowable sequence, and working through it methodically turns an overwhelming problem into a series of manageable moves.
Here’s a step-by-step playbook for Denver taxpayers who owe the IRS, the Colorado Department of Revenue, or both — and where to turn when a matter needs professional handling. If you’d rather hand it off, you can click here to reach the Denver office of a dedicated tax practice. But the sequence below works whether you go it alone or get help.
Step one: take an honest inventory
Resist the urge to leave the mail unopened — that’s how deadlines get missed. Open everything and sort it: which notices are from the IRS, which from the Colorado DOR, what tax years they cover, and how much each claims you owe. Because Colorado has a state income tax, many Denver taxpayers owe both agencies, and knowing exactly what you’re facing is the foundation for everything that follows.
Step two: stop the fastest-moving threat
Not all deadlines are equal. A federal Final Notice of Intent to Levy starts a clock before the IRS can seize assets. On the state side, Colorado’s notice of intent to file a judgment lien gives you only ten days, and its collection tools — 25% wage garnishment, bank levies, refund interception — can move quickly. Identify the most imminent threat and address it first, because reversing an active levy or garnishment is far harder than preventing one.
Step three: pick the resolution that fits
With the picture clear and the immediate threat contained, choose the right program for your finances rather than the one that sounds best. On the federal side, the IRS’s payment-options guidance lays out the choices:
- An installment agreement if you can pay over time.
- An offer in compromise if paying in full would cause genuine hardship — real but rigorous, per the IRS’s offer-in-compromise page.
- Currently Not Collectible status if you can’t pay anything right now.
- Penalty abatement to trim penalties where there was reasonable cause.
Colorado offers parallel options — payment plans, an Offer in Compromise, and penalty abatement — through the Colorado Department of Revenue, with the caveat that a state offer often expects an IRS-accepted offer and doesn’t automatically pause active collection.
Step four: handle both agencies together
This is where many people stumble. The IRS and the Colorado DOR collect independently, so resolving one does nothing to stop the other. Settle your federal debt and ignore the state, and Colorado can still garnish your wages and file a lien. Build resolutions that account for both, ideally on parallel timelines, so neither collector escalates while you’re focused on the other.
Step five: decide whether you need a professional
A small balance with a straightforward payment plan can often be handled directly. But strongly consider representation when the balance is large, when enforcement has started, when you have unfiled returns or multiple years, when both agencies are involved, or when you can’t realistically negotiate with a revenue officer while running your life. In those situations, the gap between a self-managed outcome and a professionally negotiated one usually exceeds the cost of the help — and a good professional will also spot the sequencing issues that cost do-it-yourselfers time and money.
If you do hire someone, vet them: a licensed attorney you can verify with the state bar, a written plan and fee agreement, honest expectations rather than guarantees, and direct attorney involvement rather than a call-center pipeline.
A few missteps to avoid along the way
The sequence above works, but a handful of common mistakes derail it. Don’t ignore a state notice on the assumption it’s less serious than a federal one — in Colorado, the opposite is often true, because the state’s ten-day lien clock and refund interception move faster than the IRS. Don’t submit a Colorado offer in compromise expecting it to freeze an active garnishment or levy; it won’t, on its own. Don’t drain a retirement account or take on high-interest debt to pay a balance before exploring the structured options, which are usually cheaper. And don’t hand a large upfront fee to a “settle for pennies on the dollar” outfit that promises a specific result before reviewing your finances — no legitimate professional can guarantee an outcome sight unseen. Sidestepping these keeps the playbook on track.
One rule that underlies every step
Before any of this works, you must be current on filing — even if you can’t pay. Neither the IRS nor Colorado will consider most relief while returns are outstanding, and filing missing returns also stops the IRS from generating substitute returns that ignore your deductions and inflate the balance. Filing is always step zero.
Pulling it together
Owing the IRS or the Colorado Department of Revenue is stressful, but it yields to a plan. Open everything, file what’s missing, stop the fastest-moving threat, choose the resolution that fits your finances, handle both agencies together, and get help sized to the stakes. Denver taxpayers who follow that sequence almost always resolve their debts on far better terms than the notices imply. The worst move is silence, which lets both collectors run their timelines. The best is a calm, prompt first step — starting with opening the mail.
