The IRS Collection Process Guide

In this guide you’ll discover: 

• What triggers an IRS collection 

• The methods the IRS uses to collect 
  

• The penalties for failing to pay tax debts 

• How to resolve IRS tax problems 
  

What Triggers the IRS Collection Process? 

There are a number of things that will trigger an IRS collection process. Here are the most common examples that could trigger an IRS collection against you: 

• You failed to file your tax return on time 

• You can’t afford to pay your entire tax bill 
  

• You haven’t paid the penalties or interest on your tax bill 

• The IRS has determined some of your income was not reported 

•  The IRS determined you made inappropriate deductions 

• The IRS is trying to collect tax debt from your spouse 

• There was an error made in processing your payment 

• The IRS miscalculates how much you owe 
  

• You failed to respond to an IRS notice 

IRS Collection Methods  

After the final attempt for payment through mail and by telephone, the IRS will start enforcing their legal right to collect. The IRS has a lot of power and authority, and a wide range of tools available for collecting owed taxes. If they find money or assets, they can take them from you with or without your approval. 

The most common ways the IRS collects on owed taxes include: 

Tax Liens

A lien is a legal claim against your property. The word “property” is defined as anything and

everything that you own including your home, car, business, bank account, retirement account, etc. A tax lien stops short of giving the IRS ownership and control of your assets, so they cannot use a tax lien to tow away your car or take possession of your house.

Tax Levies 

With a tax lien the IRS does not actually take ownership or possession of your property. A tax levy, on the other hand, is when the IRS does take ownership of your property. It can legally take almost anything you own, and sell your belongings to pay off the tax debt.

Asset Seizure 

Assets seizure is the term that describes personal property the IRS can seize and then sell to pay off your tax debt. It includes but is not limited to property like cars, boats, homes, luxury items, businesses, vacation properties, and other real estate. 

Bank Levies 

The IRS prefers seizing financial assets when possible. The seizure of a financial asset is often referred to as a  “bank levy.” Bank levy seizures include checking and saving accounts, pensions, IRAs, 401(k)s, stocks, bonds, and cash value of life insurance policies. 

Wage Garnishment 

Wage garnishment is when the IRS takes money out of your paycheck to pay off the tax debt

over a period of time. With this collection tool you never receive the money as your employer is required to pay the IRS each pay period and deduct the amount from your take-home pay. The

garnishment continues until the entire debt is paid.

IRS Penalties   

As harsh as the IRS collection methods seem, they are not considered penalties. In addition to facing aggressive collection tactics there are penalties that accumulate for failing to pay taxes. The end result is you end up paying more to the IRS than what you originally owed. 

There are times when tax penalties go beyond interest and fines and result in criminal prosecution and jail time. The IRS will penalize you for the following: 

• Failing to file a tax return 
• Failing to pay or pay in full 
• Filing inaccurate tax returns 
• Negligence or lack of effort in complying with the tax rules 
• Tax fraud or intentionally underpaying taxes 

Failure to File Penalty 

When you do not file a tax return by the April 15 due date (or by the extended due date, if you file for an extension) the IRS will charge you a “failure to file” penalty. The dollar amount of the penalty depends on the amount of tax owed, the number of months that have passed since the deadline and the reason for the tax return not being filed.

Failure to Pay Penalty 

The standard penalty is 0.5 percent of the unpaid amount per month. Over time the penalty

can add up but is capped at 25 percent of the original amount owed.

Accuracy Related Penalty 

There are two main inaccuracies that can cause a tax return to show a lower tax amount than what is actually owed: 1. Listing less income than was actually earned. 2. Taking more in deductions than what should actually apply.

Negligence Penalty 

Defining “negligence” can be tricky because it depends on what would be considered a “reasonable” effort to comply with tax rules and regulations. If it’s determined you did not make a “reasonable” attempt to understand and follow the IRS rules you can be found negligent and face tax penalties. 

Tax Fraud Penalties 

If you intentionally do not file or pay taxes or intentionally report inaccurate numbers in an effort to lower your tax bill, it is considered tax fraud. Any intentional effort to avoid paying what you owe in taxes constitutes tax fraud. Tax fraud is illegal and carries the most severe penalties including jail time. 

Resolving Your Tax Problems 

The first thing to keep in mind about tax problems is you’re not alone. Millions of people experience tax problems every year. There are many ways you can get tax debt relief and get back to living life without the burden of tax debt looming over you.

There’s a number of ways a tax professional can help you with tax debt resolution  

• Remove penalties 
• Stop wage garnishments 
• Installment plans 
• Offer in compromise 

Remove Tax Penalties 

If you are facing penalties for not filing or paying your taxes on time you may be able to get those penalties removed (or even get past penalties and interest refunded) if you can show that there was a “reasonable cause” for why you were late.

Stop Wage Garnishments 

Because wage garnishments function like a forced involuntary installment plan, they can often be removed by setting up a regular installment plan. The installment plan may even be less than what the IRS is taking from your employer. 

Installment Plans 

The IRS is usually very accommodating if you make the effort to set up an installment plan. They know they can’t take money that doesn’t exist, and allowing you to pay down a debt over time gives them the best chances of getting anything at all. 

Offer in Compromise 

If your financial situation makes it nearly impossible to pay off all of your tax debt the IRS may be willing to accept a partial payment and call it good. They don’t grant an offer in compromises often, but if you qualify it can save you tens of thousands. 

How We Can Help 

If you’re facing the possibility of IRS collections or already experiencing IRS collections the Tax Hardship Center is ready to help. We provide the advice and guidance you need to get through the IRS collection process and back to life. 

Our team of tax specialists have a proven track record of helping people with all types of simple and complex tax problems. 

The Tax Hardship Center Can Help You: 

• Remove tax liens 
• Remove tax levies 
• Prevent the seizure of assets 
• Stop wage garnishments 
• Set up installment plans 
• Negotiate offers in compromise 
• File overdue tax returns 
• Defend tax audits 

If you have any questions about the IRS collection process or would like more information about how we can help contact us today.