With recent decreases in tax revenues the IRS is stepping up collection efforts more than ever, so you can be sure that the IRS will collect from you what is owed. The IRS has created an automated collection system that ensures that they will get what they want. Because of this system the IRS is known as the harshest (legal) debt collector in the United States.
Once the IRS gets wind of the fact that you failed to pay your taxes the their collection process starts. The IRS collection process is a very automated process and it is starts with being subtle about what is owed and will continue to get harsher and harsher until your taxes have been paid or enough assets have been seized to fulfill the outstanding tax liability. This collection process is very similar for most individuals but it can deviate course a bit depending upon your assets, financial situation, and past run ins with the IRS. Below are the standard steps the IRS collection system will follow.
- Receive Series of Tax Assessment Letters: These letters will start off by simply stating what you owe in taxes and that you must pay. Each letter following the original will get a bit harsher in tone and a bit more threatening each time. Each time an IRS letter goes ignored you can expect the IRS to increase the severity of their next letter or action. Typically you will receive about 4 different letters that assess tax amounts owed before any actual action is taken by the IRS. These threatening letters will last for a period of 4-6 months before the IRS moves to their next collection tactic.
- Receive an Notice of Federal Tax Lien: A tax lien gives the IRS legal claim to your assets in order to secure payment. This should not be taken lightly because it is very unlikely you will be able to get any company to lend you money since the IRS has first dibs on proceeds from your assets over other creditors. Many people do ignore the tax lien because it may not effect their everyday life, but if you continue to ignore it you can be assured the IRS will move to a harsher collection mechanism. (Sometimes this step can be skipped and the IRS moves right to #3 if they are dealing with a lot of money or think they are dealing with a very unresponsive taxpayer)
- Receive notice of intent to levy: A tax levy is the final collection mechanism used by the IRS where they will forcefully seize your assets against your will. Once they issue a tax levy they have already labeled you as an unresponsive taxpayer and take collections into their own hands since you have failed to work with them to pay back the taxes. The IRS has several levy methods they use and they will choose the one that is easiest for them to collect taxes. The three forms of levy they will use are the following:
- Wage Levy: They will contact your employer and require that they withhold amounts from your paycheck in order to pay down the tax liability.
- Bank Levy: The IRS will contact your bank and require that they freeze funds in their in order for them to seize what funds are in there to satisfy the tax liability.
- Asset Seizure: The IRS will seize assets of yours and sell them in order to satisfy the outstanding tax liability.
As you can see the IRS will not stop until they get what is owed to them. Hiding from the IRS and trying to prevent them from getting the taxes owed is extremely difficult. If you cannot pay your taxes it is a good idea to work with the IRS and pay back the taxes you owe on your terms instead of on their terms.