It is no secret that federal, state, and local tax laws are complex. Even if a taxpayer files taxes before they are due in April and expects a return, he or she could receive a bill from the Internal Revenue Service (IRS) for their tax liability. That bill starts what is known as the IRS collection process, a multistep process that continues until the taxpayer either pays the requested amount or determines that the IRS cannot legally collect the payment. Some of the main steps of that process follow in this introduction.
Note that the process is subject to change at the federal government’s discretion. If you have received a bill from the IRS, you may want to consider calling a tax lawyer from Damiens Law at (601) 957-9672 to learn more about your tax rights.
Step 1: File your tax return
The first step in the IRS collections process is to file the appropriate tax return. In most years, tax returns are due on April 15. A taxpayer may choose to hire an accountant, use an online tax service, or file his or her own taxes. The return is sent to the nearest service center, checked for accuracy, and filed with the IRS. Regardless of whether it is filed electronically or mailed in, the information is entered the same way.
A single tax return typically takes four to eight weeks to process, assuming that there are no delays. Inaccuracies, incomplete forms, or illegible handwriting can slow down the filing process. Some returns are selected for an extra screening if additional information is needed. Regardless of how long the process takes for an individual return, it will eventually be stored in the IRS computer database.
Step 2: Receive balance due notice
If the IRS processes a tax return and determines that a tax liability is due, the filer will receive a balance due notice of federal tax, which could be an IRS Notice CP-501, 502, or 503. Statements are sent approximately one month after the initial return is processed.
The notice of federal tax informs the filer that there is a balance due and explains how the interest and penalties will accrue if it is not paid by the requested date. If the payment is not made on time or no installment agreement has been established, the taxpayer will receive letters approximately every four weeks until the amount due is paid, or the IRS will move on to step three to start the collections process, which may include levying bank accounts, levying retirement income or the seizure of state income tax refunds.
Step 3: Receive intent to levy notice
If the taxpayer does not attempt to contact the IRS or pay the balance owed, the IRS will send out a letter stating its intent to seize property or assets if the outstanding tax debt is not managed—by the taxpayer either paying the amount in full or setting up an installment agreement. You must act quickly to protect the IRS from levying your bank accounts.
To increase the chances that the filer will receive the levy notice, the IRS sends it via certified mail to the taxpayer’s last known address. However, it is essential to note that the IRS is not responsible if the taxpayer does not receive the letter regarding their tax liability. If the agency has sent the letter, it has fulfilled its legal obligation and has the right to begin asset seizure. However, a taxpayer may mistakenly receive an intent to levy letter. If you believe that you have received an unwarranted intent to levy notice, consider reaching out to the tax lawyer at Damiens Law to learn about your legal rights and options regarding the IRS collections process.
Step 4: Receive federal tax lien notice
Although the last three steps can occur in any order, it is most common to receive a federal tax lien notice after receiving an intent to levy notice. This letter essentially states that the IRS has permission to collect what they are owed through property possession.
Federal tax lien consequences
Federal tax liens allow the IRS to secure interest in a taxpayer’s property or assets to cover the tax liability. Federal tax liens attach to all property—real and personal. Whether acquired before or after the lien notice, all assets are vulnerable to the IRS to claim. Liens are effective from the date the balance due was calculated, regardless of when the federal lien notice is actually received. A lien will remain on a taxpayer’s property until one of the following occurs:
- The tax liability balance due is paid in full
- The IRS abates the balance due
- The collection statute of limitations expires, typically ten years from the assessment date
Liens can have multiple negative consequences for the taxpayer. Not only can liens damage a person’s credit score, but they can make it more challenging to take out a loan. Additionally, liens are a matter of public record and can be seen by potential lenders, landlords, and employers.
Federal tax lien withdrawal
When a collection information statement is prepared and a tax debt balance is paid after a federal tax lien notice has been distributed, the IRS releases the lien by filing a Certificate of Release of a Federal Tax Lien. However, the lien remains on a person’s credit report for up to seven years. Therefore, even after it has been paid, a tax lien can make it difficult for a person to borrow funds for a significant purchase like a vehicle or home. In some instances, taxpayers can have the IRS withdraw the lien, according to the Legal Information Institute, which removes the notice from public records and credit reports.
Some of the ways to achieve withdrawal include the following:
- Set up or convert to a DDIA – Direct Debit Installment Agreement—Depending on the circumstances, indebted taxpayers and businesses owing less than $25,000 may have the option to set up or convert to a direct debit installment agreement (DDIA), which withdrawals the lien from public record.
- Prove the IRS did not follow protocol—Proving that the IRS failed to follow federal procedures for tax collection is grounds for lien withdrawal.
- Explain how withdrawal will allow faster tax debt repayment—In some instances, tax lien withdrawal can make it easier for taxpayers to make payments on the amount owed. If, for example, a debtor has no assets or secured creditors, he or she could consider requesting payroll deductions to facilitate payments.
- Prove withdrawal is beneficial for the taxpayer and the IRS—Withdrawing a federal tax lien could benefit both the taxpayer and the federal, state, or local government in certain circumstances. This is most often the case with business owners who are subject to a loss of licensure.
- Pay in full—To have the IRS withdraw a tax lien after receiving payment in full, the taxpayer must also be current with his or her estimated tax payment, comply with tax return laws for three years, and request the withdrawal in writing.
Receiving a withdrawal can be a complicated process on its own. If you think that you have a case for a federal tax lien withdrawal, consider working with a tax lawyer to learn more about how to support your claim.
Step 5: Service center transfers account
In the event that the IRS determines its collection efforts to be insufficient, it can transfer an account to the Automated Collection Systems (ACS). The ACS is a system of computerized collection centers across the United States that call debtors. In total, there are 23 ACS centers that do the following:
- Make and receive calls from delinquent taxpayers in attempts to resolve overdue accounts
- Discover taxpayers’ and assets’ locations to aid the IRS in the collections process by searching public records and calling third parties
- Adjust taxpayers’ accounts when receiving relevant correspondence
While ACS centers function as call centers, individual collection agents are assigned to specific cases. However, because calls are often rerouted due to high call volumes, it is unlikely that a taxpayer will ever speak directly with his or her designated collections agent. All data collected is stored by the IRS for future use if needed.
Step 6: Revenue officer assigned to account
Depending on the situation, the service center may choose to forgo sending an account to the ACS and, instead, send it to a revenue officer at a local tax office. Revenue officers are assigned cases based on their location. While ACS center agents are often tasked with a significant number of cases at any given time, revenue officers have much smaller caseloads. In addition, they also have access to more collections techniques. Depending on the amount owed, revenue officers may contact a taxpayer at home, through an employer, or even through family members and friends or neighbors.
Revenue officers can issue summons to taxpayers and designate meetings. If a taxpayer fails to comply with the demands of a revenue officer, he or she may be subject to criminal charges. A local revenue officer typically only becomes involved with a case when a significant amount of money is owed to the IRS.
Get help from Damiens Law with the IRS collection process
If you have received a tax debt balance notice of federal tax from the IRS, the IRS collections process has already begun. Ultimately, if you owe money to the IRS, you will need to pay it. However, an experienced tax attorney can help to determine if there are ways to reduce, defer, or erase any or all of the tax liability.