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The IRS Collection Process

The IRS Collection Process Overview

If you do not pay in full when you file, you will receive a bill from the Internal Revenue Service (IRS). This bill begins the collection process, which continues through alternative payment options and ends when your account is satisfied. Below you'll find an overview of the IRS collection process as well as guidance on what to do if you're caught in it.

The First Bill

The first bill you receive will explain the reason for your balance due and require payment in full. It will include the tax due plus penalties and interest that are added to your unpaid balance from the due date. You can pay this bill over the phone or by sending the IRS a check or money order payable to United States Treasury.

If You Cannot Pay in Full

If you cannot pay the balance in full, you should pay as much as you can with the notice. The unpaid balance is subject to interest which is compounded daily and a monthly late payment penalty. Therefore, it's in your best interest to pay your tax liability in full as soon as you can. You might also want to consider a cash advance on your credit card or a bank loan. The interest rate your credit card issuer or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. It may also keep your tax debt from negatively affecting your credit rating.

If you're unable to pay your balance in full, the IRS may be able to offer an individual payment plan with monthly installments. However, if all payment options have been considered and it's determined that you don't qualify for an installment agreement, you can also file an offer in compromise. This is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances.

Contacting the IRS

When you contact the IRS, you should be prepared to discuss your basic income and expense information. To prepare, gather together all of your information about your income, assets and necessary living expenses, such as your most recent pay stubs, rent or mortgage payment amounts, transportation expenses, etc. This will allow the IRS to assist you most effectively.

It's important to contact IRS and make arrangements to pay the tax due voluntarily. If you do not take some action to pay your tax bill or contact the IRS to make arrangements to settle the account, the IRS may take collection actions to secure payment, which can include:

  1. Filing a Notice of Federal Tax Lien
  2. Serving a Notice of Levy
  3. Offset of a refund

By filing a Notice of Federal Tax Lien, the government establishes its interest in your property as a creditor. The lien is a claim against your property, including property that you acquire after a lien is filed. The lien is required by law to establish priority as a creditor in competition with other creditors in certain situations, such as bankruptcy proceedings or sales of real estate. Once a lien is filed, it may appear on your credit report and harm your credit rating. Once a lien is filed, the IRS generally cannot issue a "Certificate of Release of Federal Tax Lien" until the taxes, penalties, interest, and recording fees are paid in full.

A Notice of Levy is another collection method in which the IRS can, by legal authority, confiscate (take) and sell property to satisfy a tax debt. This could include your wages, bank accounts, Social Security benefits, and retirement income. If your tax liability remains unpaid, the IRS can also levy assets such as your car, boat, or real estate.

In addition, when you have an outstanding tax liability, any future federal tax refunds that you are due will be offset by the amount you owe. Any state income tax refunds you are due may also be levied, and the proceeds applied to your liability.

Still Have Questions? Get a Free Attorney Match 

When it comes to LLC tax benefits and liabilities, these matters are usually best left to the experts. A legal professional can walk you through the process and help you decide which business structure is right for you and how it will impact your own tax situation. Reach out to an experienced tax attorney in your area today and you can receive an initial evaluation of your case at absolutely no charge to you.

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