Repay back taxes first

Pencil on income tax form

Of all the kinds of debt you can have, tax debt is the worst.

The Internal Revenue Service has astonishing powers to get the money you owe -- and make your life miserable in the process.

It can take money out of your paycheck, seize your bank accounts, put liens on your property and even take your car or home.

That's why settling with the federal government should be your top priority, no matter how much you owe on credit cards or medical bills.

You're not powerless.

In 1988, Congress passed the Taxpayer Bill of Rights -- over the objection of the IRS -- to curb the worst conduct of its most zealous agents. It established new rules for what the IRS can say and do to collect back taxes and even permitted taxpayers to sue the IRS for damages if it violated those rights.

But you have to act, and you have to know how to respond when the IRS says you owe the government more money.

Here's how to:

Dispute an incorrect tax bill.

Negotiate a payment plan.

Deal with a tax bill you've ignored.

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