- Instructor: Attorney Bob Schaller
- Lectures: 8
- Quizzes: 1
Understanding the IRS Collection Process.
This course provides a brief overview of the IRS collection process. It does not provide strategies or exceptions to the rule. Later courses provide a greater explanation of these issues.
The collection process starts after a taxpayer files a tax return without full payment and/or the IRS makes a final decision establishing the correct tax liability. The IRS records the amount of the liability in its internal records. The first external action occurs when the IRS sends the taxpayer a bill for the amount due and a demand for payment, including any penalties and interest. The Tax Code provides that if a person “liable to pay any tax” fails to pay said tax after receiving a demand to do so, a lien arises “in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” 26 U.S.C. § 6321.
The collection process continues until the tax liability is paid or until the IRS may no longer legally collect the tax because the collection statute expiration date has passed. The first notice a taxpayer receives is a letter that explains the balance due and demands payment in full. It will include the amount of the tax, plus any penalties and interest accrued on the unpaid balance from the date the tax was due. The unpaid balance is subject to interest that compounds daily and a monthly late payment penalty. Taxpayers should pay the tax liability in full as soon as possible to minimize the penalty and interest charges.
Taxpayers may want to investigate and consider methods of financing full payment of the taxes. Taxpayers should consider selling assets with equity – like cars or summer homes. Bank loans and home equity lines of credit are a good source of funds. Luckier taxpayers may have access to the “Bank of Mom & Dad.” Credit cards are used by some taxpayers. The interest rate and applicable fees the credit card companies and banks charge may be lower than the combination of interest and penalties imposed by the Tax Code.
Tax professionals should urge taxpayers to take proactive steps and contact the IRS when taxpayers cannot fully pay their back-taxes. However, taxpayers are strongly advised to seek legal counsel prior to communicating with the IRS or submitting any information to the IRS. Like a prosecutor in a criminal trial, the IRS can use against the taxpayer any oral or written statements made plus any documentation tendered. Therefore, taxpayers should fully understand the law and procedures as well as the strategy for victory prior to communicating directly with the IRS. Better yet, taxpayers should authorize their tax attorney to do all the talking.
Taxpayers who are unable to pay their tax liability in full have several alternatives to enforced collection by the IRS. The IRS is required to consider alternative methods of collection prior to seizure. Four alternative methods of collection relevant in this matter are the installment agreement, the Offer in Compromise (“OIC”), Innocent Spouse Relief, and Currently Not Collectible status.
Is doing nothing an option? Ignoring the IRS is an option – but a terrible option! In other words, ACT NOW! Taxpayers have far greater leverage negotiating with the IRS prior to the IRS unleashing its collection apparatus. The most lethal weapons in the IRS’ arsenal are bank levies, wage garnishments, and asset seizures, followed closely by the Notice of Federal Tax Lien. Last for most taxpayers is the IRS’ “interception” of tax refunds from the IRS and State governments. Each weapon is discussed is this course.
Overview of the IRS Collection Process
Levy Against Assets
Tax Lien & NFTL
Offer in Compromise
Installment Payment Agreement
Innocent Spouse Relief
Currently Not Collectible Status