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An Overview of the IRS Collections Process

Updated on July 18, 2016

This post is a (very) brief introduction to the IRS collections process for anyone who is unfamiliar with it.

The IRS does not begin collections until the tax is assessed. This starts with a bill issued after a taxpayer files a balance due return without including a payment. If a taxpayer doesn’t file a return for whatever reason, the IRS will file a return for him or her. It may take a few years to get around to it, but the IRS will do so eventually. The IRS will file a computer-generated return for the delinquent taxpayer and send him a notice of the proposed return and balance due. The taxpayer then has a certain length of time to file an original return before the balance due in the IRS return is assessed. Taxpayers in this situation should ALWAYS file an original return. Why? The IRS is not known for showing favoritism to the taxpayer and this is no exception; a return filed by the IRS will almost always show the worst possible outcome for the taxpayer.

Once the return is filed, the IRS will send a bill stating the amount of taxes owed plus penalties and interest. This bill will demand payment in full. At this point, the taxpayer has a couple of options. He can either pay the bill in full or work out a payment plan, known as an installment agreement. The other options (such as an offer in compromise) are only available if his financial circumstances warrant it. This will not be the case 90% of the time.

If the taxpayer fails to pay in full or to make appropriate agreements within ten days of the bill being issued, the IRS will file a Notice of Federal Tax Lien against the taxpayer and his property. This lien will be filed publicly in the records of his local county courthouse. It will apply to all property he currently owns and any he acquires after the filing. It will show up on his credit reports and background checks. This can lead to obvious problems obtaining credit or employment.

Once the lien is filed, it will stay in place until he satisfies tax debt in full or the collections period runs out. The latter is ten years from the date the tax was assessed. Withdrawal could also occur if he enters into an acceptable payment arrangement or certain other circumstances are met. Penalties and interest will continue to accrue on the debt will the lien is in effect.

If our hypothetical taxpayer still does not settle his debt with the IRS, the next step in the collections process is a bank levy or a wage garnishment. The IRS can get permission to seize cash in bank and retirement accounts. It can also garnish wages, social security benefits, retirement income, and other sources of funds. Again, a levy or a garnishment will not be released until the collections period runs out or the tax debt expires.

After all of this, if the tax debt still isn’t satisfied and the taxpayer is refusing to cooperate, the IRS still has one more trick up its sleeve: asset seizure. Yes, the IRS really can take his car, his boat, and/or is house and sell them at auction to satisfy his tax debt. This is a last resort and one IRS agents do not use often, but it does happen every year.

This is why the IRS is often called the most powerful collections agency in the world…and is the reason you must take the steps necessary to solve your tax nightmare today!


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