When a taxpayer owes the Internal Revenue Service (IRS) taxes, he or she may not have the funds immediately available to pay. When this happens, the IRS may begin the collections process to get the taxes owed for your tax liability. This IRS collection process can seem confusing and scary, particularly when taxpayers only owe a few hundred or a few thousand dollars in tax liability and receive a notice that seems to be threatening to take their home or other assets away from them.
There are six steps in the IRS collections process, beginning with the taxpayer’s duty of filing a tax return. If you have received a collections notice from the IRS and are not sure what to do next, consider contacting Damiens Law at (601) 957-9672 in Mississippi or in Tennessee to learn more about the process and what options you may have.
Taxpayer files tax return
Each year, every taxpayer in America is required by the IRS to file a tax return by April 15 unless that date is on a legal holiday or weekend. If April 15 falls on a holiday or weekend, the deadline is the next business day. If the taxpayer’s tax return is properly addressed, postmarked, and deposited in the mail by the due date, then it is considered filed on time.
Once a tax return is filed, it takes approximately four weeks for the IRS to process it. There may be delays if the return:
- Has missing or incomplete information
- Is handwritten
- Has an incorrect Social Security Number
- Is chosen for additional screening
- Is received during peak season (March/April and September/October)
IRS sends notice of balance due
When the IRS processes the return, the system will note if taxes are due and unpaid. Approximately one month after the IRS has processed the return, the agency will send a Notice of Balance Due for the tax liability. This is not a collection notice. The Notice of Balance Due is sent merely as a reminder that there is a tax liability and that interest and penalties are accruing. The taxpayer will receive increasingly urgent letters approximately every four weeks until the tax debt is paid or until the IRS begins the IRS collection process.
If the taxpayer pays the tax debt or makes a payment arrangement at this point, then the collections process is halted. If the taxpayer does not pay the tax debt or make a payment arrangement, then the process continues to the next step.
IRS sends notice of federal tax and intent to levy
Approximately eight weeks after the Notice of Balance Due is sent (12 weeks after the return has been processed and 16 weeks after the return was filed), the IRS will send a Notice of Intent to Levy. This threatening letter notifies the taxpayer that the government intends to seize property if the tax debt is not paid or a payment arrangement is not made. This letter is sent via certified mail to the last known address for the taxpayer.
This step is required by the government before the IRS can begin seizing assets, but the requirement is only that the IRS must send it, not that the taxpayer must have received it. If a large balance is owed, however, the IRS may skip the Notice of Balance Due and go straight to this step in an attempt to compel the taxpayer to pay the tax debt.
IRS sends notice of federal lien being filed
In this step, the IRS takes action and sends a Notice of Federal Tax Lien Being Filed. This means that the IRS is filing a federal tax lien against the taxpayer’s property. This property can include but is not limited to:
- Wages, bank accounts, and retirement accounts (or retirement income)
- Home, car, and other property
- state income tax refunds
While a lien does not always occur, the IRS does usually want to secure its interest. When someone sells property with a federal tax lien against it, satisfaction of the lien takes priority. The money owed to the IRS is paid first, before any remaining money can be given to the property owner. Liens can also damage a taxpayer’s credit score, limit his or her ability to borrow money, and remain on public record for others to see.
Case assigned to IRS automated collection systems
After the IRS has placed or notified a taxpayer that the agency plans to place a federal tax lien, the account is then transferred to the Automated Collection Systems (ACS). The file may also be transferred to the collection field function (a revenue officer at a local IRS office). The ACS functions much like a call center, but cases are assigned to individual agents. Most agents have approximately 125 cases at one time.
The ACS can access public records, search asset records, and more to find out where taxpayers are located, what assets taxpayers have that can be liened, and other information. The agent will try to contact the taxpayer if the taxpayer does not contact the agent, but the agent will also escalate the case if needed. Additionally, it is likely the IRS will require the taxpayer’s to provide a collection information statement of ACS.
Case assigned to local IRS revenue officer
This is the final step in the IRS collections process. If the IRS cannot reach a taxpayer by phone, the ACS fails to find the information needed, and/or the case meets certain collection priority requirements—usually determined by the amount due or estimated amount due by the IRS—the case will be referred to a local IRS office where a revenue agent is assigned to the case.
The revenue agent can issue a summons to the taxpayer or to third parties, such as banks or other financial institutions, to get the information needed. The agent can also demand that the taxpayer appear in the office with the required records or perform site checks to see what assets a taxpayer or business may have. This is the highest level of the collections process within the IRS. However, if further action is needed, the revenue agent can bring in district counsel who can then initiate legal action against the taxpayer.
Additional things to know
The following are some additional points for taxpayers to remember when dealing with the IRS collections process.
Options for taxpayers who cannot pay the full amount owed
If a taxpayer cannot pay the full amount of taxes owed, he or she has several options for avoiding the collection process:
- Make a payment arrangement—Taxpayers can make payment arrangements via an installment agreement that allow them to make monthly payments until the original balance and any penalties and interest are paid in full.
- Make an offer in compromise—If the IRS agrees that the amount due may not be accurate or if the taxpayer has insufficient assets and income to pay what is owed or if paying what is owed would create an economic hardship, theIRS may accept an Offer in Compromise. Essentially, the taxpayer offers to pay less than the taxes owed, and the IRS agrees to accept the lesser amount as payment in full.
- Request to delay the collections process—If a taxpayer would not be able to pay basic living expenses while paying the taxes owed (in full or in payments), the taxpayer can request to delay the collections process. The IRS will require proof of the taxpayer’s financial status and other related paperwork. The agency may still apply penalties and interest and file a Notice of Federal Tax Lien, but if approved, the taxpayer will receive a temporary delay for paying the taxes due.
The IRS has up to 10 years to collect taxes
The IRS can collect taxes due for up to 10 years after they were assessed. Therefore, a taxpayer can receive a notice of federal tax from a previous year. It is important that taxpayers carefully read any and all notices they receive from the IRS so they can be certain of exactly what they owe and why. The 10-year limit can be suspended under certain circumstances, including but not limited to:
- When a taxpayer is going through bankruptcy
- If the taxpayer requests a Collection Due Process hearing
- When the IRS is considering a request for Innocent Spouse Relief, a payment plan, or an Offer in Compromise
A lien will not go away
Once the IRS places a lien against a taxpayer’s property, it will remain in place until one of three things happen:
- The taxes are paid in full (in one payment or through a payment plan)
- The lien is abated by the IRS
- The collection statute of limitations runs out (typically approximately 10 years from the date the taxes were assessed)
Additionally, a lien does not only apply to the property that a taxpayer owns when the lien is placed. The lien also applies to any future property the taxpayer acquires until the tax debt is paid in full.
Some property cannot be seized
Many taxpayers panic when they receive a letter from the IRS threatening to seize their property. If a case progresses to property seizure, the IRS can seize property, such as wages, bank accounts, federal payments like Social Security benefits, houses, cars, and other property.
However, there is property that the IRS cannot seize, including unemployment benefits, worker’s compensation, income from court-ordered child support payments, personal effects for a household, and certain amounts worth of books and tools to work.
The IRS can take future tax refunds to satisfy debt
Applying a lien or seizing property are not the only options the IRS has for collecting taxes owed. The revenue agency can also take subsequent tax year refunds and apply the amounts to the taxes owed until the taxes are paid in full.
The final three steps can be taken differently
Depending on the amount of tax owed and other factors, the IRS can decide to take the final three steps in a different order. For example, the IRS may send an account to ACS before issuing the Notice of Federal Lien Being Filed. The difference in order does not necessarily mean that the lien will not be filed or that property will not be seized.
Consider contacting an experienced IRS tax attorney
The IRS collections process can be intimidating, but a taxpayer does not need to try to figure it all out alone. Options are available for the taxpayer who is struggling to pay taxes owed.