If you owe the Internal Revenue Service (IRS) and do not otherwise arrange to pay off the debt, it might be helpful to understand the collection process.
The IRS is adept at collecting debt and is not afraid to do so. It is a bit like a decision tree—if you ignore notices from the IRS, the IRS could go straight to a levy. If you respond to assessment and penalty notices, your options and ability to maintain some control over the process is far greater.
The IRS collection process
- When you have an unpaid tax liability, the IRS will send you a bill for the taxes. This kicks off collection generally until the bill is paid or otherwise excused.
- The first notice explains the tax due, along with any penalties and interest that have already accrued. The notice constitutes a demand for payment. Monthly late fees are added and interest is compounded daily. The notice also includes instructions on how to appeal the tax bill.
- If you genuinely believe the tax bill is in error, it is in your best interest to respond quickly to the notice. You have the right to appeal the notice. If the amount assessed is considerable, think about speaking with an experienced tax lawyer. An attorney experienced with the IRS will review the bill and guide you on the best options. You can appeal the notice by mailing a written protest to the IRS address referenced on the initial notice. There is usually a 30-day window of opportunity in which you may file an appeal, so do not delay if you intend to argue against the bill.
- When the tax liability is legitimate, the best option is to determine a method of payment for all or most of the debt. The penalties and interest that rapidly accrues on a tax debt is usually less than the interest you will owe if you pay off your debt with a credit card or bank loan.
- The IRS offers short and longer-term payment plans. Under both types of payment plans, penalties and interest continue to accrue until the debt is satisfied—but if you are in good standing on your payments, the collection process is halted. You can also consider an Offer in Compromise.
- Barring these payment methods, you can work with the IRS to try and delay collection. Key to this equation is remaining in contact with the IRS to try and work out a plan that works for you and the IRS. As ever, if the IRS delays collection while investigating your circumstances, penalties and interest continue to build.
- If the IRS proceeds with collection, it may file a Notice of Federal Lien on your property and assets. It may also use a levy to seize your real property, bank accounts, retirement accounts, and other items upon which sale may satisfy some or all your debt.
The best bet is to stay out of debt with the IRS. But tax debt happens. Do not ignore notices from the IRS and work with the agency to find your best option—which could be an appeal if you believe you have real grounds to prove an error on the part of the IRS. If managing a complex tax liability, consider speaking with a tax professional to understand your best options.
Concerned about a tax liability or tax crime allegation? Contact us today
The tax group at Robert J. Fedor, Esq., LLC responds quickly and strategically to clients facing collection, tax litigation, or arrest. We represent local and international clients from offices in Chicago and Cleveland. Call 800-579-0997 or reach out to us today.
