Owing money to the Internal Revenue Service (IRS) is distressing. You might begin receiving multiple communications from the IRS, all demanding immediate payment. Understanding the IRS collection process can help familiarize yourself with your legal rights and assist you in making informed decisions about your case. A knowledgeable tax lawyer from Damiens Law can walk you through your options. Consider contacting Damiens Law for help with your tax case by calling (601) 957-9672.
What is the IRS collections process?
If you do not pay your tax bill in full when it is due, the IRS will send the account to collections. This means that the agency is taking active steps to collect the debt you owe, along with additional tax penalties and interest. Typically, the IRS attempts to recover the debt themselves. Though, there are times when the IRS refers the account to private contractors to collect the debt on the government’s behalf.
The IRS collections process
If the IRS collections process generally consists of the following:
Every taxpayer has a duty to file a tax return if required to do so. Even if a taxpayer does not file their tax return, they can still owe debt. Additionally, they can face additional penalties for failing to file on time.
The IRS will send a tax bill to the taxpayer if they do not pay their tax debt at the time they file their return. The IRS provides a first notice of taxes owed. The taxpayer has ten days from the date of that letter to pay the debt in full.
Penalties and interest
If the taxpayer does not pay the tax debt in full by the date indicated in the notice, the IRS will begin to impose additional interest and penalties. Potential penalties and interest may include:
- Interest of the federal short-term rate, plus 3%
- Late payment penalty of ½ of 1% for each month the bill remains due
- Failure to file penalty of 5% of the tax owed for each month (subject to a 25% maximum)
Interest is compounded daily. Monthly late payment penalties may apply. Even by paying some of the tax debt, the taxpayer can reduce some of their balance and the associated interest and penalties.
The taxpayer can contact the IRS to make payment arrangements to pay off the tax debt. If the taxpayer’s alternative payment arrangements are accepted, the debt does not go into collections.
If the IRS does not accept the taxpayer’s alternative payment arrangements or the taxpayer ignores all notifications, the IRS will begin the collections process.
The IRS will send additional notices before taking certain actions, such as a:
- Notice of tax lien
- Notice of tax levy
- Notice to offset tax returns
The IRS will continue to send collection letters that state how much debt the taxpayer owes, how the debt was incurred, a deadline to pay the debt, and instructions on how to pay it.
The IRS sends a Final Notice of Intent to Levy and Notice of Your Right to Hearing before taking action to collect the debt.
Possible forms of IRS tax collections
The IRS may take many collections actions, including:
The IRS might garnish your employment wages. A portion of each of your paychecks may go to pay the IRS. This wage garnishment can happen without your approval, and your employer will be legally obligated to remit a portion of your wages to the IRS. In some cases, this percentage can be substantial depending on the amount that you owe to the IRS.
One of the most powerful tools in the IRS’ arsenal is the ability to impose an IRS tax levy. The IRS can seize property with a tax levy, which might include your:
- Bank accounts
- Social Security benefits
- Retirement income
- Real estate
- Other property it can collect and sell to satisfy your tax debt
The IRS can place a tax lien on your property that shows the government has an interest in it. If there is a lien on the property, you cannot sell or transfer the property until you have paid the tax bill and the government has released the lien. With tax liens, the lien applies to the property you own at the time the lien was issued, as well as any property you subsequently acquire. It can be financially frightening to know that the IRS has the legal power to place a tax lien on your property. If you are facing a possible tax levy or tax lien on your property, consider visiting with an experienced tax attorney at Damiens Law to learn more about all of your legal options, and ensure your financial rights remain protected.
The IRS can also use any future tax refunds to offset the tax debt you owe. This can apply to federal as well as state tax refunds. It is important to understand that the IRS has broad powers to take refunds that you may be owed by either the state or federal government.
The IRS can also refuse to issue, refuse to renew, or revoke a taxpayer’s passport if their tax debt is seriously delinquent.
Ways to avoid IRS tax collections
Fortunately, there are a number of ways to avoid tax collections. The IRS prefers to resolve tax debt before taking collections actions. Damiens Law can explore whether any of these actions may be taken to help you avoid collections actions:
Communicating with the IRS
In some cases, the tax debt calculation is not accurate. A tax lawyer can review your situation and determine if there was a mistake that the IRS can correct so that your tax debt is not put into collections. If the IRS determines that their initial assessment is correct, they can revise the tax bill.
Entering into an installment agreement
If you cannot afford to pay the entire tax bill, you may be able to enter into an installment agreement with the IRS in which you agree to pay monthly payments to pay off your tax liablity. When the IRS accepts your installment agreement, it will not place your account into collections. Generally, the installment agreement must be set up so that the tax liability is paid in full within three years.
Installment agreements can help ensure that you have the ability to pay your tax obligations over a period of time so that you can still remain able to pay your other financial obligations in your life. If you are facing a potential installment agreement with the IRS, consider visiting with an experienced tax attorney to help you craft an installment agreement that works for your financial situation.
Making an offer in compromise
If you cannot afford to make an installment agreement, you may be able to resolve your tax debt for less than you owe through an offer in compromise. With this request, the IRS considers your assets, budget, income, and tax debt to determine if payment would cause an economic hardship. You pay back a percentage of what you owe while the remaining balance is discharged.
Temporarily delaying collections
The IRS can report a taxpayer’s account currently not collectible and temporarily delay collection activity until their financial condition improves if it determines that the taxpayer cannot presently afford to pay the tax debt. Before deciding to temporarily delay collection activity, the IRS may request the taxpayer complete information and provide proof of their financial situation.
While the account is not collected on while in this status, penalties and interest are charged on the account. The government can still file a federal tax lien during this time. However, the taxpayer would not have to worry about wage garnishments or tax levies while in this status. The IRS will continue to review the taxpayer’s financial situation to determine when they can start paying on the tax debt. Collections activity can continue once the IRS deems the taxpayer collectible.
Contact Damiens Law for help understanding the IRS collections process
If you believe you will be subject to the IRS collections process, you might consider contacting a tax lawyer for help. One of the most important rights you have is to choose the tax representative you want to use to communicate on your behalf. A tax lawyer can review your situation, communicate on your behalf, and use their in-depth knowledge of tax laws to protect your rights. A lawyer from Damiens Law can also assist with the appeals process in the event the IRS has made adverse decisions in your case. Consider reaching out to us by calling (601) 957-9672.
We can analyze your unique situation and advise you how to request a partial payment plan with the IRS.