IRS Tax Problems – The IRS Collection Process
If you do not pay in full when you file your tax return, you will receive written Notice of the amount you owe, a Bill from the IRS. This Bill starts the IRS Collection Process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time period for collection has expired.
The First Notice you receive from the IRS will be a Letter that explains the balance due and demands payment in full. It will include the amount of the tax, plus any penalties and interest added to your unpaid balance from the date the tax was due.
If you are unable to immediately pay your balance in full, the IRS, upon request, may be able to offer you a monthly Installment Payment Agreement. If you cannot full pay under an Installment Payment Agreement, you may propose an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability by payment of an agreed upon reduced amount.
If you are unable to pay anything because of a current financial hardship, the IRS may temporarily suspend certain collection actions, such as issuing a levy, until your financial condition improves. The IRS may, however, file a Notice of Federal Tax Lien while your account is suspended. Interest and late payment penalties will continue to accrue while collection is suspended. If you are a member of the Armed Forces, you may be able to defer payment.
It is important to contact the IRS and make arrangements to pay the tax due voluntarily. If you do not contact the IRS, the IRS may take action to collect the liability. Some of the actions the IRS may take to collect taxes include:
- Filing a Notice of Federal Tax Lien
- Serving a Notice of Levy, or
- Offsetting a Refund to which you are entitled
The Federal Tax Lien is a legal claim to your property, including property that you acquire after the Lien arises. The Federal Tax Lien arises automatically when you fail to pay in full the taxes you owe within ten (10) days after the IRS sends its First Notice of taxes owed and demand for payment, and the IRS makes an Assessment of the tax. The IRS also may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the Notice of Federal Tax Lien is filed. The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. Once a Lien arises, the IRS generally cannot release the Lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
The IRS will withdraw a Notice of Federal Tax Lien if the Notice was filed while a bankruptcy automatic stay was in effect. The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines that (1) the Notice was filed too soon or not according to IRS procedures; (2) you enter into an Installment Payment Agreement to satisfy the liability unless the Installment Payment Agreement provides otherwise; (3) withdrawal will allow you to pay your taxes more quickly; or (4) withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the IRS.
The IRS also may use a Levy to collect taxes. The IRS may Levy assets such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize your property for the purpose of selling the property to satisfy a tax debt including your car, boat, or real estate. In addition, any future federal tax refunds or state income tax refunds that you are owed, may be applied to your federal tax liability.