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Tax Collections and Liens

Do you know what happens when you owe the IRS a tax debt but don’t pay in full? If not, then you aren’t alone. Many people don’t understand the process when they don’t pay their tax debt. We’ll look at the collection process the IRS follows.

Step One: You Get a Bill

The first step in any collection process is receiving a bill. The IRS is no different. They will send you an invoice for the total amount you owe. The bill is the beginning of their collection process.

The collection process continues until you pay your account in full or until the IRS can no longer legally collect the tax. Your first notice will give you your balance and demand payment in full. Your balance includes your tax debt plus penalties and interest that have been added since it was due.

That’s right; the tax debt accrues interest that is compounded daily. On top of the interest, there is a monthly penaltyfor paying late. If you don’t have the total amount upfront, you should send as much as possible to the IRS and then look into other payment arrangements.

Step Two:Investigate Payment Plants

The IRS can consider a payment plan for people who can’t pay the entire balance. One of the options that might be available is a short-term plan that gives you 180 days to pay your balance, including the interest and fees. This plan is for individuals whose combined tax, penalties, and interest equal $100,000 or less. You might qualify for an installment plan if you can’t pay upon receiving the bill or within 180 days.

To apply for a payment plan,you should complete an Online Payment Agreement Application or a Form 9465, Installment Agreement Request that you can mail with your bill. You should know that people who apply through the Online Payment Agreement can only set up a plan for up to 120 days at this time.

Setting up an installment agreement comes with a fee. In some cases, the fee may be reduced or waived for qualifying low-income individuals. Interest and late payment fees will continue to be added to your total even while making payments.

Step Three: Offer in Compromise

If you can’t pay your total balance with an installment agreement, you can apply for an Offer in Compromise. An Offer in Compromise is an agreement between the IRS and the taxpayer that resolves tax liability by paying a reduced amount that the two parties agree upon. Before the IRS considers an Offer in Compromise, the taxpayer must have filed all of their tax returns and paid all the estimated tax payments for the current year. It’s wise to consult with your tax attorney before filing for an Offer in Compromise.

Step Four: Not Collectible

If you still need more time to pay or have an extreme financial hardship, you can request that the IRS delay collection. After delaying collection, the IRS can report your account as not collectible. This is typically a temporary solution due to extreme financial hardship. It doesn’t forgive you from paying the debt; it simply means the IRS says you are currently unable to make payments.

Step Five: Tax Liens

It is essential to contact the IRS to make voluntary arrangements to handle your tax debt. If you don’t, the IRS can file a Notice of Federal Tax Lien against you. That means that the IRS has a claim on your property, and it can have an adverse effect on your ability to get credit. The IRS can seize any assets from income and bank accounts to physical property such as vehicles or real estate.

Final Thoughts

If you don’t pay your tax liability when you file your taxes, the IRS can start collection efforts against you. If you cannot pay your debt when you get your statement from the IRS, it’s essential to contact them to discuss your options. It’s a good idea to consult a qualified tax attorney about your tax debt. The attorneys at Guardian Law can help you understand your options for paying your tax debt.