When the IRS determines that a taxpayer owes them money, they will seek these back taxes, along with penalties and interest, through the collections process. This powerful government agency has several methods to collect tax debts and associated penalties. Individuals who are going through the collections process should explore all avenues for resolving the debt as soon as possible. The more time it takes to pay off the debt, the more the taxpayer will end up paying in penalties and interest. Knowing why you should work with Damiens Law on your IRS collections case can save you both time and money.
An experienced tax attorney helps their clients find ways to resolve their tax debt based on their tax situation. This is why you should consider working with Damiens Law on your IRS collections case: contact us today in Mississippi at (662) 442-4423 and in Tennessee at (901) 499-4466 to learn more.
Steps in the IRS collections process
When a taxpayer owes taxes, the IRS will begin its automated collections process. This begins with letters that notify the taxpayer of their owed tax amount and any interest and penalties assessed. The process gradually becomes more serious if the debt is not resolved.
The CP14 notice is the first step in the Internal Revenue Service (IRS) collections process. This letter notifies the taxpayer that they owe money on unpaid taxes, including how much they owe and how the debt can be resolved. The taxpayer is required to pay the amount owed by the due date on the notice. If the taxpayer cannot pay the debt by this due date, they may arrange a payment plan with the IRS. The taxpayer also has the option to contact the IRS to dispute the owed taxes if they believe that an error has been made.
If the tax debt is not paid by the due date listed on the CP14 form, the IRS moves on to the second step in the collections process: sending a CP501 notice. The CP501 is a reminder that the taxpayer owes money to the IRS. This notice also includes how much is owed, when the payment is due, and the taxpayer’s payment options. The taxpayer must pay the owed tax by the due date on the notice and may arrange a payment plan if they cannot pay it on time.
If the taxpayer has not made a payment nor responded to the first two notices, the IRS will send them a CP503 notice. This is a second reminder that the taxpayer still owes a balance to the IRS. This contains the same information as the previous two notices, along with a due date for paying the debt.
Notice of intent to levy (CP504 notice)
When a taxpayer fails to pay their debt, arrange a payment plan, or respond to the first three notices, the IRS will send out a Notice of Intent to Levy (aka a CP504 notice). This letter notifies the taxpayer that if they do not pay the tax debt immediately, the IRS may levy their income and bank accounts and seize their property or right to property, including state income tax refunds, to satisfy the debt.
A levy allows the IRS to legally seize a taxpayer’s property to satisfy a tax debt. This includes garnishing wages, seizing money from their bank accounts and other financial accounts, and seizing and selling vehicles, real estate, and other personal property. If you have received an IRS levy notice, contact Damiens Law to learn more about why you should work with Damiens Law on your IRS collections case.
Final notice of intent to levy and notice of your right to a hearing
If the IRS decides to move forward with a levy, they will send the taxpayer Letter 1058, or the Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This is the final notice the IRS sends before issuing a levy. It notifies the taxpayer of their right to a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals before the levy is applied. During the CDP hearing, the taxpayer will have the chance to negotiate an alternative to enforced collections. The taxpayer may also dispute the amount owed if they have not already done so.
Options for resolving IRS tax debt
Taxpayers who find themselves in the IRS collections process have various options for resolving the debt, depending on the circumstances of their case. The IRS is generally willing to work with taxpayers to arrive at a solution that allows them to satisfy the debt owed. An experienced attorney can evaluate the client’s case and help them determine which option is best suited to their situation.
The IRS allows taxpayers with delinquent taxes to enter into payment plans in which the debt may be paid off through monthly installments. When a payment plan is agreed upon, the IRS will temporarily suspend the collections process – provided that the taxpayer keeps up with their monthly payments. This means that the IRS may not assess a levy during the period of the installment agreement. Taxpayers should consider payment plans if they believe they can pay the taxes in full within the extended period specified in the plan.
Offers in compromise
An offer in compromise allows the taxpayer to settle their tax debt for less than the full amount they owe. This is an option for taxpayers who cannot pay their entire tax liability or those who would be in financial hardship if they did pay the debt in full. The Internal Revenue Service considers the unique facts and circumstances of the taxpayer when deciding whether to approve an offer in compromise, including their income, expenses, asset equity, and ability to pay the debt. They will usually approve the offer in compromise if they determine that the amount offered by the taxpayer represents the most that the IRS can expect to collect within a reasonable time.
Taxpayers who wish to apply for an offer in compromise must meet the following requirements:
- All required tax returns and estimated payments have been filed
- They do not have an open bankruptcy proceeding
- When applying for the current year, the taxpayer has a valid extension
- Employers must have made tax deposits for the current and past 2 quarters before applying
Those who qualify for an offer in compromise have two options for their initial payment, depending on their offer:
- Lump sum – An initial payment of 20% of the total offer amount is submitted along with the application. If the offer is accepted, the IRS will send a written confirmation. Any remaining balance must be paid in five or fewer payments.
- Periodic payments – The applicant also submits an initial payment with their application and pays off the remaining balance through monthly installments while the IRS decides whether to accept the offer. If it is accepted, the taxpayer continues to make monthly payments until the debt is paid in full.
Request “currently not collectible” status
Taxpayers have the option to request that the IRS places their account into “currently not collectible” status, which temporarily halts the collections process. The IRS may agree to this request if they determine that the taxpayer cannot pay both the tax debt and their basic living expenses. If approved, the IRS usually will not attempt to collect the owed taxes temporarily. However, interest and penalties will continue to accrue on the debt.
The IRS typically asks taxpayers for financial information and reviews their income and expenses when this request is made. They may also decide that the taxpayer should sell assets or apply for a loan to satisfy the debt.
Taxpayers may be able to relieve their tax debt by filing for Chapter 7 bankruptcy, but they must meet the following requirements:
- The tax debt is only for federal or state income taxes – other debts, such as payroll taxes, do not qualify.
- The taxpayer has not willfully evaded taxes or filed fraudulent returns.
- The debt is at least three years old.
- Tax returns were filed at least two years before filing for bankruptcy.
- The IRS assessed the tax debt at least 240 days before the bankruptcy was filed.
Do you need a lawyer during IRS collections?
While there is no legal requirement to have a lawyer during the IRS collections process, many taxpayers can benefit from legal guidance during this difficult and stressful situation. An experienced tax attorney understands how the collections process works and the various options available to taxpayers who owe significant money to the IRS. These attorneys can also evaluate the unique financial circumstances of the taxpayer and help them determine how to best resolve the debt.
Some of the ways tax attorneys can help their clients during the IRS collections process include:
- Negotiating with the IRS for alleviation of liens, tax levies, wage garnishments, and other collections methods
- Help draw up realistic alternative agreements that allow the collections process to be temporarily suspended
- Negotiate installment agreements
- Help with filing delinquent returns
- Minimize penalties
Learn more from our experienced tax lawyers
Are you wondering why you should work with Damiens Law on your IRS collections case? While you are free to attempt to resolve the debt on your own, our team of experienced tax attorneys can help you explore all of your options and find the best choice given your financial situation. Contact Damiens Law today in Mississippi at (662) 442-4423 and in Tennessee at (901) 499-4466 to learn more.