IRS Collections Process: What to Expect & How to Stop
The IRS follows a structured process when attempting to collect delinquent taxes from an individual or business. The process begins with a bill asking you to send payment. If you continue to delay paying your taxes, the IRS will take additional steps to seek collection, such as:
- Adding penalties and interest to your outstanding balance each month
- Seizing your tax refund checks
- Filing a Notice of Federal Tax Lien against your property
- Levying your bank accounts or garnishing your wages
The IRS is generally required to send you several notices during the collections process. You’ll also have opportunities to prevent IRS collection actions, but you’ll have to act quickly to avoid missing any deadlines.
The Ten-Year Statute of Limitations on Collections
The IRS generally has ten years to collect your tax debt before it expires. The date your debt is no longer collectible is known as the Collections Statute Expiration Date (CSED).
The IRS can extend the ten-year CSED date if you ask them to consider an installment agreement request, Offer in Compromise, or if certain other events take place. When the IRS is considering these types of requests, they are temporarily unable to take particular collection actions and will extend your CSED to account for these periods.
If you owe tax debt for multiple tax years, each debt may have a different CSED. Once your CSED passes, the IRS can no longer enforce the tax debt for that period.
How the Collections Process Begins
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When the IRS officially assess tax, the ten-year collections period begins. If your tax debt is shown on a return, the IRS assesses the debt when you fail to pay in full and receive a bill demanding payment.
If the IRS makes adjustments to your return or if you don’t file a tax return, the IRS can make a deficiency assessment. You’ll receive a Notice of Deficiency in the mail, which gives you 90 days to dispute the tax assessment.
You may then receive more IRS notices demanding payment of your tax debt. Each month the penalties and interest will accumulate until you pay off your debt in full or the debt expires.
The IRS Automated Collection System
The IRS Automated Collection System (ACS) handles most small delinquent tax accounts. You’ll receive several computer-generated notices in the mail, reminding you to pay your tax debt. If you want to talk to an IRS employee, you can call the ACS call centers to try to resolve your issue.
ACS employees can offer some types of tax resolution options. However, they are generally not as knowledgeable as IRS Revenue Officers. The IRS does not assign your case to a specific individual while in ACS, and you may find some ACS employees to be more helpful than others.
If you aren’t sure if the ACS employees are informing you of all of your tax resolution options or adequately handling your case, you may want to consult a tax professional for advice.
IRS Revenue Officers
If you owe more than $100,000 in tax debt, the IRS may assign your case to an IRS Revenue Officer. Revenue Officers are better trained and have more authority than ACS employees.
Once a Revenue Officer contacts you, it’s a sign that the IRS considers your case a priority. If you haven’t already done so, you may want to contact a tax professional who can deal with the Revenue Officer on your behalf.
The Revenue Officer will be your only point of contact once the IRS assigns them to your case. You won’t be able to call ACS.
You can expect a Revenue Officer to be aggressive in attempting to resolve your tax problems because they need to close their cases as quickly as possible. They can take a broader range of enforced collection actions than ACS employees do, such as seizing your home or certain business assets.
IRS Private Collection Agencies
The IRS may also transfer some collection cases to private agencies. These agencies generally handle older cases where the IRS has been unsuccessful or unable to contact the taxpayer.
Private debt collection agencies are authorized to approve certain tax resolution options. However, they can’t offer every type of tax relief or payment option that the IRS allows.
The debt collection agencies may also incentivize their employees to push taxpayers into options that benefit the agency. If you aren’t satisfied with the service or options you are receiving from the private debt collector, you can request from the debt collector that they assign your case to the IRS.
You should also confirm that the private debt collection agency is one of the agencies authorized by the IRS to avoid scams. Contact the IRS if you aren’t sure about whether the agent is authorized to pursue the collection of your tax debt.
IRS Collection Actions
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The IRS can use enforced collection actions when a taxpayer fails to work out a payment plan or tax settlement. You will generally receive a notice before the IRS takes these actions, and you’ll have a chance to appeal by requesting a Collection Due Process (CDP) hearing or using the Collection Appeals Program (CAP).
Notice of Federal Tax Lien
The Notice of Federal Tax Lien (NFTL) is a public record stating that the IRS has an interest in your property. Your other creditors or people interested in buying your property can also see the tax lien in the public records, but credit bureaus no longer show tax liens on credit reports.
The NFTL can limit your access to credit or your ability to sell your property. The IRS will send you a letter when they have filed an NFTL, and you’ll have a chance to request a CDP hearing to appeal the filing of the NFTL.
The IRS can seize a portion of your paycheck every pay period until you have paid off your tax debt in full. You’ll receive a certain amount of pay based on your filing status and the number of dependents, and the rest will, your employer will send to the IRS.
You’ll receive a Notice of Intent to Levy before the IRS begins garnishing your wages, and you’ll have the opportunity to request a CDP hearing to avoid the levy. Wage garnishments are continuous levies, which means that the IRS can issue the levy once and then seize your wages repeatedly until you pay your balance in full.
Bank Account Levies
Bank levies are one-time events. The IRS can seize all of the funds in your bank account on the date the levy is issued, up to the amount of your tax debt.
You’ll receive a notice of your right to request a CDP hearing before the bank levy takes place.
Tax Refund Offset
The IRS can seize your tax refund check and apply it to your tax debt. The IRS can also seize your state tax refund when you owe federal tax debt.
The IRS has the power to certify your tax debt to the State Department if it is considered seriously delinquent. This generally requires that you owe at least $53,000 (as of 2020, adjusted annually for inflation) and that the IRS has already attempted to take certain enforced collection actions.
Once your tax debt is certified, the State Department can revoke your passport or deny your passport renewal application.
Other Collection Actions
The IRS can also take many other enforced collection actions, such as:
- Levying the funds in your retirement account
- Seizing your house, car, or other property
- Seizing your business assets
- Taking a portion of your federal payments, such as Social Security benefits
These actions are less common, but the IRS can pursue in certain collection cases.
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Ways to Stop IRS Collections
There are several ways you can avoid IRS enforced collection actions. Once you negotiate a payment arrangement for your tax debt, the IRS will generally not levy your assets. However, the IRS may still file a federal tax lien against your property.
The IRS won’t levy your assets if you are making monthly installment agreement payments. There are many types of installment agreements, such as:
- Guaranteed installment agreements
- Streamlined installment agreements
- Direct debit installment agreements
- Partial payment installment agreements
If you miss payments or otherwise violate the terms of your agreements, your payment plan may go into default. The IRS can then attempt to terminate your agreement and resume collection activity if you don’t resolve the issue within 30 days.
Offer in Compromise
An Offer in Compromise(OIC) is a settlement of your tax debt for less than what you owe. The IRS will consider an OIC if you can’t afford to make monthly payments, and your offer amount exceeds your reasonable collection potential.
The IRS generally won’t levy assets while considering your Offer in Compromise (OIC) or once the IRS has accepted your OIC. However, you’ll need to make all required payments and stay in tax compliance for the next five years.
You can request Currently Not Collectible (CNC) status if you are experiencing a financial hardship that prevents you from paying your taxes. The IRS won’t levy your assets while your accounts in CNC status.
Penalties and interest will continue to accrue. The IRS may also review your account periodically to see if your financial situation has changed.
When to Consider an Appeal
You can appeal many levies and liens by requesting a Collection Due Process (CDP) hearing. You should receive a Notice of Intent to Levy that informs you of your right to request a hearing within 30 days.
You should request a hearing with IRS Appeals if you want to stop the impending levy. You can propose a payment alternative or make your arguments for why the levy is improper.
Other collection actions may be appeal using the Collection Appeals Program (CAP). This procedure is available for a wider variety of collection actions and decisions, such as:
- Denials of requests for lien discharges, withdrawals, or subordinations
- Installment agreement rejections, modifications, or terminations
- Appeals made before a CDP notice is issued or after a levy has taken place
There are pros and cons to each type of IRS appeal. Contact a tax professional to discuss your options and get help avoiding IRS collection actions.