How the IRS Collects Back Taxes
If you owe back taxes to the IRS, you might be wondering about how the IRS will try to collect from you. This article will review the IRS collections process and discuss what you can expect to happen step by step. If you have additional questions or would like to find out how we can help protect your rights when it comes to IRS collections, contact us to talk to an IRS tax attorney in Reno, NV.
First Contact: Notice of Balance Due
The first step the IRS has to make when trying to collect back taxes is to notify the taxpayer of the amount that is due. This is done by sending a balance due notice to the taxpayer that looks like this. The IRS will send this notice every month for three or four months in a row. During this time, they are not allowed to take the taxpayer’s property or garnish the taxpayer’s wages. However, we always advise taxpayers during this time to start making voluntary payments to the IRS as a showing of good faith.
Last Chance Before Collections Begin: Notice of Intent to Levy
After sending three months of “Balance Due” notices, the IRS will send the taxpayer a “Notice of Intent to Levy.” This is the final warning that the taxpayer has unpaid taxes and needs to make payment arrangements with the IRS. Otherwise, the IRS will start taking collections action in 30 days from the date of the notice.
This notice is also important because it gives the taxpayer the opportunity to request a “Collections Due Process Hearing.” This is a review of the taxpayers case done by an Appeals Officer who will evaluate whether the proposed collections activity is appropriate and proper. Taxpayers should consider requesting this hearing if they don’t think they owe the amount claimed by the IRS or have tried making payment arrangements but the IRS refused to accept them.
After the 30 day period has expired, the IRS can start collecting the amount owed. Collections are handled by different departments within the IRS depending on the amount of taxes owed and the complexity of the case. Tax debts of less than $100,000 are usually assigned to the IRS “Automated Collections System.” Unusually difficult cases or cases with a tax debts of more than $100,000 are usually assigned to a Revenue Officer working out of the taxpayer’s local IRS office.
It usually takes 4-6 weeks for the case to get assigned to either of these departments once the 30 day period on the Notice of Intent to Levy has expired. Additionally, it can take up to an additional 12 weeks before the taxpayer actually hears anything from the department handling his or her case. During this time, it’s smart for the taxpayer to start making voluntary payments to the IRS. This way the IRS will view the taxpayer as less of a collection problem when the case finally makes its way to the appropriate department and is reviewed by the ACS or the assigned Revenue Officer.
IRS Levies & Wage Garnishments
Regardless of whether a taxpayer’s account is handed by ACS or a Revenue Officer, the IRS will usually attempt to collect the tax debt with it’s most powerful collections tool: the “levy.” The levy allows the IRS to seize the taxpayer’s money and/or property in order to pay back taxes. The most common form of levy is the “bank account levy,” used by the IRS to take all of the available funds out of the taxpayer’s checking account, savings account, or investment account. The IRS can levy these accounts without any warning, leaving the taxpayer with a suddenly empty bank account despite having other bills to pay. This is why it is important to deal with tax problems early on and prevent the IRS from using it’s levy power.
Another powerful collections tool available to the IRS is the wage garnishment. The IRS can garnish up to 20% of a taxpayer’s wages, including social security. In order to garnish the taxpayer’s wages, the IRS must send notice to the taxpayer’s employer. This notice informs the employer that the taxpayer owes back taxes to the IRS and provides instructions for withholding a portion of the taxpayer’s wages. If the employer refuses to cooperate with the garnishment order, the IRS can hold the employer responsible for the taxpayer’s unpaid tax debt. So, it is very uncommon for an employer to refuse to comply with an IRS wage garnishment order.
The IRS collections process is long and slow. Taxpayers usually have at least three months from the time the tax debt arises until the IRS will begin collections activity. Whether the account is handled by ACS or a Revenue Officer depends on the amount of the tax debt. Once assigned, the IRS will begin using collections efforts like the bank account levy or the wage garnishment to collect back taxes.
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