IRS Collections: What Happens If You Owe the IRS Money?
If the IRS assesses taxes against you or if you file a tax return and don’t pay, the IRS will start the collections process. The exact process varies based on how much you owe, your ability to pay, and several other factors. Wondering what to expect? Then keep reading for an overview of the IRS collections process.
Want to avoid IRS collection actions? Need help resolving your tax debt now? Then, contact us at the W Tax Group today. We have extensive experience helping individual and business clients resolve their IRS and state tax debts. Check out our service guarantee to see how committed we are to client satisfaction. Or keep reading to learn more about IRS collections.
IRS Collection Process
According to Publication 594 on IRS.gov, collections start with a bill. You will receive a bill in the following situations 1) if you file and don’t pay, 2) if the IRS finds an error in your tax return, or 3) if the IRS audits your return and assesses additional taxes. The bill notes your tax due plus interest and penalties.
If you don’t pay the first bill, the IRS will send you at least one more bill. Interest and penalties will accrue on your account so the second bill will be higher than the first one. If you still don’t pay or reach out to the IRS to make other arrangements, the IRS will move forward with the collection process.
The steps in the collection process vary. In all cases, the IRS will keep your tax refund and apply it to your tax debt. If you owe more than $10,000, the IRS will issue a tax lien, but the agency has the right to issue liens on lower amounts of debt. If you still don’t pay, the IRS can seize assets or send a revenue officer to your home or business.
The IRS notifies the State Department about seriously delinquent tax debts, and if that happens, you will lose your passport. As of 2023, tax debt is considered seriously delinquent if the total bill is $55,000 or more, and this number increases annually based on inflation.
Tax Case Assignment
The IRS assigns tax cases to revenue officers, the automated collection system, or private collection agencies. The collection process varies depending on where your case is assigned. Here’s a brief look at each of the options.
A revenue officer is an IRS employee whose job is to collect taxes. In contrast, an IRS agent audits tax returns.
Generally, the IRS assigns complex tax cases to revenue agents. This includes high tax liabilities, several years of unfiled returns, repeated tax compliance issues, and business taxes. The IRS may also assign a revenue officer to your case if you have repeatedly ignored the IRS’s attempts to communicate with you.
When a revenue officer gets assigned to your case, they are personally responsible for collecting the tax debt or working with you to make other arrangements. That’s why cases assigned to revenue officers have a much higher likelihood of being collected.
If a revenue officer is on your case, you need to make arrangements on your tax debt as soon as possible, or they will enforce collection actions against you.
Automated Collection System
With the automated collection system (ACS), the IRS’s computers send automatically generated collection notices to you. If you call, someone from one of the IRS’s call centers will work with you and try to resolve the debt.
With ACS collections, no one is personally tasked with collecting your tax bill. The customer service reps from the ACS generally just put your file back into the queue if they can’t get a resolution. This sometimes makes it easier to fly under the radar, but you can still end up facing enforced collection actions.
Private Debt Collection Agency
The IRS assigns some inactive tax debts to private collection agencies. If the IRS assigns your account to a collection agency, it will send you Notice CP40 and Publication 4518 (What You Can Expect When the IRS Assigns You to a Private Collection Agency).
The notice will also contain a Taxpayer Authentification Number — you use this number to verify your identity when the collection agency calls you. Note that some scams involve thieves who pretend to be collecting IRS tax debts. If someone calls and demands payment, be very careful. Make sure that you verify their identity before providing any payment details.
IRS Enforced Collection Actions
If you don’t voluntarily pay your back taxes, the IRS can use many different strategies to force you to pay the tax debt. Enforced collection actions include the following:
- Penalties and interest — Most penalties are assessed monthly and can get up to 25% of the balance. Interest accrues until you pay off the tax debt. Both penalties and interest start the very first day that you are late.
- Tax refund offset — This is when the IRS seizes your federal or state tax refund to cover your tax debt.
- Federal tax lien — A lien secures the IRS’s interest in your real and personal property, and it makes obtaining loans or selling assets difficult.
- Wage garnishment — The IRS tells your employer to send part of your wages to the IRS. You only get to keep an exempt amount which is pretty low. If your first job covers the exempt amount, the IRS can garnish all of the wages from your second job.
- Tax Levy — This is when the IRS seizes your bank accounts and other assets.
- Passport revocation — If you have a seriously delinquent tax debt, the IRS can certify your debt to the State Department and you will lose your passport.
You will not go to jail for not paying your taxes. That is not part of the collections process. It can only happen when you commit tax fraud or other serious tax crimes. But the IRS can make your life very difficult. To avoid enforced collection actions, you should reach out to a tax attorney as soon as you can.
IRS Collection Process Timeline
The IRS collection process timeline varies depending on the situation. In some cases, people owe delinquent taxes for years before the IRS contacts them. In other cases, the IRS kicks off collection actions relatively quickly.
Often, if the IRS has been ignoring your case, you will see a flurry of collection actions right before the collection statute expiration date — after that date, the IRS can no longer collect on the debt. The timeline also varies depending on IRS staffing levels and other internal factors. For instance, many IRS collection processes were suspended in 2021 during the COVID pandemic.
Although it’s difficult to predict the exact timeline of the collection process, there are several timelines that the IRS must follow. Take a look at the deadlines associated with the following collection actions.
Notice of Federal Tax Lien
Usually, the IRS only issues tax liens if you owe $10,000 or more. The agency will notify you within five days of filing the tax lien, and if you want to appeal, you must do so by the deadline shown on the notice. After you receive a determination from the Office of Appeals, you have 30 days to request a review in Tax Court.
Notice of Intent to Levy
The IRS must send you this notice at least 30 days before seizing your bank account, garnishing your wages, or levying other assets. If you don’t pay in full, make arrangements to pay, or appeal within 30 days, the IRS can move forward with the following types of tax levies:
Bank levy — If the IRS issues a bank levy, your bank puts a freeze on your account for 21 days. If you’re unable to resolve the tax bill, the bank sends you money to the IRS at the end of the 21-day period.
Wage garnishment — To garnish your wages, the IRS will send a letter with instructions to your employer. Your employer will give you a Statement of Dependents and Filing State, and you must return that within three days. If you don’t, the IRS will garnish your wages as if you are single with no dependents. In other words, the agency will take out as much money as possible. Typically, the garnishment starts on the pay period after your employer receives the notice.
Property seizure — If the IRS seizes your property, it must make a public announcement of the sale. Then, the agency generally auctions off your property within 10 days. You can make a request for a decision review within that 10-day period. You have 180 days to buy back real estate, but you must pay the auction winner the purchase price plus 20% annual interest.
Exceptions to the 30-Day Notice Requirement
In the following situations, the IRS doesn’t have to give you a 30-day notice before levying your assets:
- When the levy applies to a tax refund.
- If the tax collection is in jeopardy.
- If the levy is for a federal contractor
- For Disqualified Employment Tax Levies — This is when the IRS seizes employment taxes from taxpayers who requested Collection Due Process appeals on employment taxes for other periods within the last two years.
Disagreement With IRS Decisions About Levies and Tax Liens
If you disagree with an IRS employee’s decisions about tax liens, levies, or other collection actions, you can request to talk to the employee’s manager. You should do so within 10 days if the IRS has seized your property. Otherwise, you can request a managerial review at any time.
The manager must contact you within two days of when you make the request. If they don’t, contact the IRS collection department and request an appeals consideration.
You can also request a review from the IRS Office of Appeals if you disagree with the manager’s decision. You need to do so in three days if a revenue officer is assigned to your case.
Statute of Limitations
The collection process must end when the statute of limitations expires on your tax debt. The IRS statute of limitations on tax debt is 10 years. After this time, the IRS can no longer collect the tax debt. The clock starts running when you file your tax return or the IRS assesses a tax and sends you a notice of deficiency.
The clock pauses in the following situations, and the time gets added to the 10-year deadline:
- 30 days while the IRS considers your application for a payment plan or an offer in compromise.
- 60 days after you file an appeal
- Any time you are outside of the United States for six months in a row or longer.
- During a bankruptcy automatic stay plus six months.
- From the date you apply for innocent spouse relief to 90 days after the notice of determination.
During the collection process, the IRS may request that you provide information so that the agency can do a financial analysis of your account. This can happen when your case gets assigned to a revenue officer or if you apply for certain tax relief programs. Here are some of the forms that the IRS collection department uses to do financial analysis.
Form 9297 (Summary of Taxpayer Contact)
The IRS sends you this form when a revenue officer has been assigned to your case. It asks about your income and assets. The revenue officer uses this information to look for ways that you could pay your tax debt. In some cases, the revenue officer will complete this form by asking you questions during a face-to-face interview. In other cases, they will mail you the form.
Series 433 Forms (Collection Information Statement)
The IRS uses the 433 series of forms to collect detailed financial information from individuals and businesses. This series includes Form 433-A, 433-A (OIC), 433-B, 433-B (OIC), 433-F, and a few less common 433 forms. All of these forms ask detailed questions about your income, assets, expenses, and debts.
The IRS can also summon you or third parties to provide information. The IRS can request any papers, records, or other data that it needs to determine how to collect a tax. Failure to comply with a summons puts you in contempt of court.
How to Stop the IRS Collection Process
There are a few different ways to stop the IRS collection process.
- Ask for a managerial review if you disagree with a collection action — Then, if you don’t agree with the manager’s decision, request an appeal.
- Request hardship status — If a levy is preventing you from meeting your living expenses, the IRS will stop the levy.
- File for bankruptcy — You shouldn’t file for bankruptcy just to stop collection actions, but if you do file, collections will stop during the automatic stay.
- Set up a payment plan — This will not always eliminate a tax lien, but it will prevent most other collection actions from happening. Unfortunately, if the IRS is already garnishing your wages or levying your assets, you may not be able to stop the levy by setting up a payment plan. This is why it’s important to take action as soon as you can. Talk with a tax attorney to learn more.
- Request an offer in compromise — If the IRS agrees to settle your tax debt for less than you owe, the agency won’t be able to collect on those taxes.
- Apply for innocent spouse relief — If you can establish that your tax debt is due to your spouse or ex-spouse and that it wouldn’t be fair to force you to pay it, the IRS won’t try to collect it from you.
- Get your account marked as currently not collectible — If you really can’t afford to pay, the IRS will mark your account as uncollectible and review the situation again in the next year or two.
- Talk with a tax attorney — A tax attorney can help you figure out the best way to stop IRS collections in your situation.
Get Help With IRS Back Taxes
The IRS has a lot of power to collect unpaid taxes — arguably, more power than most private creditors. The longer you ignore your tax debt, the more likely the IRS is to take collection actions against you. To protect your income, bank account, and assets from IRS seizure, contact a tax attorney today.
At the W Tax Group, we help individuals and businesses resolve tax liabilities every day. We can help you minimize the impact of the collection process and find the best resolution option for your situation.