How does IRS Collection Work?

How does IRS Collection Work?

If you owe back taxes to the Internal Revenue Service (IRS), you may be dealing with the agency’s collections process. IRS Collections refers to the actions the IRS takes to recover unpaid tax debts from individuals and businesses.

The Collections Process

The collections process typically begins when you fail to pay your taxes in full by the filing deadline or fail to respond to a bill from the IRS. Here are the main steps in the process:

1. IRS Notices

    The first step is for the IRS to send you a series of letters and notices demanding payment of your outstanding tax liability, including penalties and interest. These ask you to pay the debt or set up an installment agreement.

    2. Tax Liens

      If you don’t respond to the IRS notices, the IRS can file a Notice of Federal Tax Lien, which publically registers the government’s claim against your current and future property. This makes it difficult to get credit or sell assets.

      3. Levies and Garnishments

        After sending more notices, the IRS can pursue levies and garnishments if you still don’t pay. A levy allows the IRS to seize and sell your property (e.g., your house, car, recreational vehicle) to collect the debt. Garnishments allow them to take money directly from your paycheck or bank account.

        4. Suspend Credentials

          For certain occupations, such as attorneys and pilots, the IRS can request that your federal credentials be suspended for failing to pay taxes.

          5. Summons and Prosecution

            In extreme cases, the IRS can summon you to appear and be questioned under oath about your finances. Failing to comply can even lead to criminal prosecution.

            Your Options

            During collections, you have options like setting up an installment agreement to pay over time, making an offer to settle the debt for less, or showing that you can’t pay and qualifying for temporary non-collection status. The most important thing is to promptly respond to IRS notices to avoid escalating enforcement actions.

            The IRS collections process aims to compel payment through increasingly aggressive measures if you fail to resolve your tax debt. The best way to resolve the situation through less drastic means is to work proactively with the IRS as soon as you have a balance due.

            If you need help resolving your tax debt, schedule a call with me today to learn about your options.