The IRS Collection Process

At the time you file, you need to have paid your taxes. If you are missing a certain amount, the IRS will send you a bill, which marks the beginning of the collection process. It goes through the process of going through alternative payment options until the account is satisfied. Here is an overview of how the process works:

The First Bill

The first IRS bill will state why you have a balance due and will require you to pay in fill. In addition to the tax due, included will be the applicable penalties and interests computed from the due date of the taxes. Instructions on how to pay is included on the bill, which may generally say that you can send check or money order payable to the United States Treasury. Include the notice when you send the payment. You also have the option to pay using a credit card by calling 1-800-272-9829 or 1-888-729-1040.

If You Cannot Pay in Full

If for whatever reason that you cannot pay the full amount, do your best to pay as much of the balance as you can. Any unpaid amount will be subject to a daily-compounded interest and monthly penalty for late payment. For this reason, you must reduce the balance due as much as you can to reduce the penalties and interest your debt will incur. Sometimes it may be better to get a loan or make a cash advance from your credit card since the interest and charges on those may be lesser than the penalties and interests imposed by the IRS on your debt. Paying as soon as you can will minimize any negative effect a tax debt might have on your credit rating.

There is also an option to pay in instalments.

But if none of the other options mentioned apply to you, you can file for an Offer In Compromise (OIC). An OIC is an agreement between IRS and the taxpayer to resolve the taxpayer’s debt. The IRS is empowered to settle federal tax liabilities and can accept less than the full amount owed under certain conditions.

Contacting the IRS

Be prepared with all the necessary information and documents that you will need before contacting the IRS. Get all your tax-related records and information ready, such as income, assets, necessary living expenses, receipts, mortgage payments, etc.

It is better to initiate communications with the IRS and volunteer to make arrangements for the payment of your debt. Do not wait for the IRS to come after you and take any more action against you or it may lead to worse things such as the following:

  • Filing a Notice of Federal Tax Lien
  • Serving a Notice of Levy
  • Offset of a refund

A tax lien is a lien imposed by the federal government against your assets where they claim an interest in them as a creditor. All your property is subject to the tax lien, even property acquired after the filing of the lien. The federal tax lien takes a front seat against all your other creditors. The tax lien would also hurt your credit rating. Because of these, it is really important to be more proactive in dealing with back taxes, contact the IRS as soon as possible and settle what you owe. Generally, once the lien is filed, the IRS will only issue a “Certificate of Release of Federal Tax Lien” when all the taxes due, penalties, interests and other fees are paid in full.

The IRS issues a Notice of Levy which will enable the IRS to legally confiscate and sell the property of the taxpayer to satisfy the taxpayer’s debt. The levy could be imposed on bank accounts, wages, Social retirement income, and Security benefits. If these still don’t satisfy your debt, then the IRS can also levy other assets such as real estate, cars, boats or any property of value.

When you have a current tax liability, your future federal tax refunds may be offset by the amount you owe. Income tax refunds can also be levied.

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