IRS COLLECTION PROCESS
If you don't pay your tax in full when you file your tax return, you'll receive a bill for the amount you owe. This bill starts the collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time or period for collection expires.
The first notice you receive will be a letter that explains the balance due and demands payment in full. It will include the amount of the tax, plus any penalties and interest accrued on your unpaid balance from the date the tax was due.
The unpaid balance is subject to interest that compounds daily and a monthly late payment penalty up to the maximum allowed by law. It's in your best interest to pay your tax liability in full as soon as you can to minimize the penalty and interest charges. If you can't pay in full, you should send in as much as you can with the notice and explore other payment arrangements. If you're not able to pay your balance in full immediately, you may qualify for a payment plan. One option is a short-term payment plan of up to 180 days, available for individual taxpayers who owe up to $100,000 in combined tax, penalties, and interest. If you cannot pay immediately or within 180 days, you may qualify to pay monthly through an installment agreement.
There's a user fee to set up an installment agreement. For low-income taxpayers, the user fee is reduced and possibly waived or reimbursed if certain conditions apply. Interest and late payment penalties up to the maximum allowed by law will continue to accrue while you make installment payments.
If you can't fully pay under an installment agreement, you may apply for an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves a taxpayer's tax liability by payment of an agreed-upon reduced amount. Before an offer can be considered, you must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. Taxpayers in an open bankruptcy proceeding aren't eligible.
If you need more time to pay, you may ask for a delayed collection and report your account as currently not collectible. If you can't pay any of your tax debt due to financial hardship, you may get the IRS to temporarily delay collection by reporting your account as currently not collectible until your financial condition improves. Being currently not collectible does not mean the debt goes away. It means the IRS has determined you can't afford to pay the debt at this time. Prior to approving your request to delay collection, you need to complete a Collection Information Statement and provide proof of your financial status (this includes information about your assets and your monthly income and expenses). You should know that you get the IRS does delay collecting from you, your debt continues to accrue penalties and interest until the debt is paid in full. During a temporary delay, the IRS will again review your ability to pay. The IRS may temporarily suspend certain collection actions, such as issuing a levy (explained below), until your financial condition improves. However, the IRS may still file a Notice of Federal Tax Lien (explained below) while your account is suspended.
If you're a member of the Armed Forces, you may be able to defer payment.
It's important to take action and make arrangements to pay/settle the tax due. If you don't the IRS will take action to collect the taxes. The IRS may file a Notice of Federal Tax Lien in the public record to notify your creditors of your tax debt. A federal tax lien is a legal claim to your property, including property that you acquire after the lien arises. The federal tax lien arises automatically when the IRS sends the first notice demanding payment of the tax debt assessed against you and you fail to pay the amount in full. The filing of a Notice of Federal Tax Lien may affect your ability to obtain credit. Once a lien arises, the IRS generally can't release the lien until the tax, penalty, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax. Settling your tax debt in full is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have settled your tax debt.
In certain situations, the IRS may withdraw a Notice of Federal Tax Lien even when you still owe the tax debt. The Notice of Federal Tax Lien may be withdrawn if you can prove the following:
The Notice of Federal Tax Lien was not filed according to IRS procedures;
You entered into an installment agreement to satisfy the liability unless the installment agreement provided for the Notice of Federal Tax Lien;
Withdrawing the Notice of Federal Tax Lien will allow you to pay your taxes more quickly; or
Withdrawing the Notice of Federal Tax Lien is in your best interest and in the best interest of the government.
The IRS may levy (seize) assets such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize your property (including your car, boat, or real estate) and sell the property to satisfy the tax debt. In addition, any future federal tax refunds or state income tax refunds that you're due may be seized and applied to your federal tax liability.
You have rights and protections throughout the collection process. For more information contact First Choice CPA Services at +1 (941) 343-3042