The IRS Collection Process – Part 1

I’m Tom Strauss, owner of Prime Accounting Services and Tax Help Now. I provide tax return preparation and tax resolution services to individuals and small businesses.

The IRS, after delaying most collection activities for about 15 months, began sending notices to taxpayers again this summer.  And unfortunately for many people, the notices were “final”, in that it was their last attempt to get the back taxes paid prior to seizing property.  If you were the recipient of one of these notices, your heart may have skipped a beat or two when you read it.

I thought I would take this opportunity to highlight for you some important information contained in IRS Publication 594, titled The IRS Collection Process.  This document is eight pages long and contains a lot of useful information.  If you’ve never seen it, you can download a copy of it here.  If you received one of the notices I mentioned, you should’ve received a copy of it with the notice.

From Tax Return To Collections

When you file your tax return (or if you didn’t file and the IRS created one for you), you may owe more tax.  This could happen because you didn’t have enough withheld from your paychecks or didn’t pay in enough estimated taxes.  If you didn’t pay the tax due or arrange with them to pay it, they’ll send you a bill.  This bill may include interest and penalties plus the tax due.

When you receive that first bill, ensure the amount of tax they say you owe matches the amount on the tax return you filed.  If it doesn’t and you think the IRS has made a mistake, call the phone number on the bill and explain why.  You may be able to resolve it quickly.  Also, if you are in or filing for bankruptcy, call and let them know.  It changes how they’ll proceed with collections.

If you can pay the amount in full, do so by the due date.  If you can’t, pay as much as you can then seek a payment arrangement for the rest.  Options exist for this, and what you qualify for depends to a great extent on your financial situation.

If you fail to pay the first bill by the due date, you’ll receive at least one more.  Interest and penalties will continue to accrue to your account until the amount owed is paid in full.

Finally, if you continue to ignore the requests for payment, your account will be turned over to the Collections section of the IRS.  It can take up to a year for Collections to get involved, but it’s often sooner than that.  And once you’re in collection status, it can seem difficult to extricate yourself.  But remember, there are professionals like me ready to assist you.

How To Pay Your Tax Debt

If you can pay the balance due in full, there are several methods you can use.  Go to IRS.gov/payments to see what’s available.  It’s also possible to pay in cash; visit IRS.gov/paywithcash for details.

If you can’t pay the entire balance now, you may qualify for a full or partial pay installment agreement or Offer in Compromise.  If your financial situation is especially dire you could be eligible for Currently Not Collectible status. This temporarily defers the responsibility to make payments.  A tax professional can help you determine if one of these options will work for you.

Special Assistance

The Taxpayer Advocate Service is free and available to anyone.  If you are having trouble getting the help you need from a particular person or office of the IRS, or feel your case isn’t being handled properly, they may be able to assist you.  Their focus is taxpayer rights, and although a part of the IRS, they are independent enough to cut through much of the red tape.

Taxpayers who need help negotiating a resolution with the IRS but can’t afford to hire a tax professional can obtain a list of Low Income Taxpayer Clinics.  These clinics can offer assistance to those who meet certain income guidelines.

I’ve covered only the first couple of pages of Publication 594.  In my next post I’ll discuss in more detail the IRS processes involving the pursuit of collecting overdue taxes.  Until then, if you want to discuss your particular situation, feel free to contact me.  You can call me at (317) 804-1174 or send an email to tom@taxhelpnow.org.