Navigating IRS Collections: Essential Steps to Take

Dealing with IRS collections can be overwhelming, especially if you're facing liens, levies, or wage garnishments. Understanding how the IRS collection process works and understanding options can help one regain control of their financial situation. This blog discusses the IRS collection process and some solutions to stop or prevent it with professional representation.

Understanding the IRS Collection Process

The IRS collection process begins when the IRS believes a taxpayer either hasn’t paid their taxes or owes more than has been paid to date. Here’s a breakdown of the steps the IRS takes to collect unpaid taxes:

1. Initial Notice and Demand for Payment

If the tax hasn’t been assessed, the IRS sends a proposed assessment. If the tax has been assessed, the IRS sends a notice describing the amount of existing debt and the year of assessment. The notice will also break down how much of the balance is tax, interest and penalties. There will also be a demand for payment generally within 30 days of the date on the notice.

2. Final Notice and Intent to Levy

If the taxpayer doesn’t respond to the earlier notices, the IRS will issue a Final Notice of Intent to Levy and a Notice of Taxpayer’s Right to a Hearing. This is a critical warning that the IRS is about to take actions to potentially seize assets or garnish wages.

3. Federal Tax Lien

A tax lien is a legal claim against property, including real estate, personal assets, and financial accounts. This can affect one’s credit score and restrict the ability to obtain loans or sell property.

4. Levy (Asset Seizure)

If the tax controversy remains unresolved, the IRS can issue a levy, which allows them to seize property, garnish wages, and freeze bank accounts to satisfy the unpaid balances.

5. Wage Garnishment

In some cases, the IRS will garnish wages, meaning they will oblige an employer to take a portion of the taxpayer’s paycheck to apply toward the balance.

How to Stop or Prevent IRS Collection Actions

Fortunately, taxpayers have options to stop or prevent IRS collection actions. Here are some effective strategies:

1. Work with a Tax Professional

Navigating IRS collections can be complex and stressful. Hiring an Enrolled Agent, can help you explore options, negotiate with the IRS, and prevent aggressive collection actions. In most cases this is the first and best step to resolving the controversy at the lowest cost to the taxpayer. The Books, Taxes & More Enrolled Agent can help determine the accuracy of the balance, respond to the IRS and negotiate penalty abatement.

2. Pay the Tax Debt in Full or Set Up a Payment Plan

If possible, paying the full amount owed will immediately stop IRS collection efforts and minimize penalties and interest. If that isn’t possible, an Installment Agreement allows one to make monthly payments over time. When establishing an Installment Agreement, it is important that the monthly payments be as small as possible to increase the odds of the payment being available every month. A taxpayer can always make extra payments but failing to make a scheduled payment will result in the IRS cancelling the agreement and resuming collection efforts.

3. Seek Currently Not Collectible (CNC) Status

If paying the tax debt would cause significant financial hardship, the IRS may place the account in Currently Not Collectible status, temporarily pausing collection efforts. This is best accomplished with your Enrolled Agent. This action has no effect on the statue of limitations (10 years in most cases).

4. File for Innocent Spouse Relief

If the tax debt is due to the actions of a spouse or ex-spouse, the argument may be made for Innocent Spouse Relief, which removes responsibility for the tax liability. This is very difficult and requires a professional.

5. Request an Offer in Compromise (OIC)

An Offer in Compromise allows the tax debt to be settled for less than is owed. The IRS uses a complicated process to determine reasonable collection potential considering income, expenses that are acceptable to the service according to a table that considers the local economy among other considerations when evaluating the offer. An Offer in Compromise pauses the statue of limitations. Preparing an offer that has a reasonable chance of success requires knowing how the IRS will consider the offer and is best prepared by the Enrolled Agent. Steve Perry at Books, Taxes & More has the knowledge and experience to navigate this complicated procedure.

Conclusion

The IRS collection process can be intimidating, but understanding how it works and taking proactive steps can help protect assets and one’s financial future. The taxpayer has options to stop or prevent IRS collection actions. Consulting with Books, Taxes & More before dealing with the IRS is a great way to minimize the financial impact of a tax controversy.

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Navigating IRS Collections: Essential Steps to Take

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