Owing the IRS money is not something that should be taken lightly or ignored. The IRS has many tools at its disposal for collecting taxes. If you do not pay your taxes, the IRS will begin to take collection actions to satisfy the debt. Here are some of the most common actions the IRS takes to collect:
- Federal Tax lien: A legal claim against your property, such as a house or car.
- Taking Tax Refunds: The IRS may apply tax refunds to previous years until prior year taxes are paid in full.
- Levy/Seizure: A legal seizure of property to satisfy tax debts. When seized, the property will be sold to pay your debt.
- Removing Passport: Refusal to renew or issue a passport for those with seriously delinquent debt.
If you are not financially able to pay your taxes, there are other steps you can take to start tackling your tax debt and avoid collection action by the IRS. For those who owe the IRS money, here is what to expect from the collection process.
If you owe taxes, the IRS will send you a bill for the tax due. If you disagree with the bill, there are steps that can be taken to dispute it. However, these steps are beyond the scope of this article. If you do not pay the first bill, the IRS will send you at least one more bill. If you do not pay, the IRS will begin taking collection actions to satisfy the debt.
The IRS has provided options for taxpayers who cannot pay their taxes in full. Taxpayers may apply for an installment agreement (payment plan), apply for an offer in compromise, or ask that the IRS delay collections.
An installment agreement or payment plan allows taxpayers to make smaller payments over time if they cannot pay all at once. To be eligible for an installment agreement, you must have filed all required tax returns, and you may need to complete a collection information statement and provide proof of your financial status.
If you cannot pay the amount you owe through installments, you may be eligible for an offer in compromise. The offer in compromise allows a taxpayer to settle their debt with the IRS for less than the amount they owe. Not everyone is eligible for this program and the settlement is subject to the approval of the IRS. The IRS will accept an offer in compromise if they agree that your tax debt may not be accurate, you have insufficient assets and income to pay the amount due, or if because of your exceptional circumstances, paying the amount due would cause an economic hardship or would be unjust.
If you face the choice of paying basic living expenses or paying the IRS, you may be able to delay collection by reporting your account as currently not collectible. The IRS may request collection information and proof of your financial status prior to placing your account on currently not collectible status. Keep in mind that penalties and interest will continue to accrue. However, this option is helpful for taxpayers who need some time to recover financially before dealing with their tax debt.
It can be challenging to determine the best course of action for dealing with tax debt. This is where retaining trusted tax counsel can help. Your tax attorney can help you establish a payment plan, evaluate your eligibility for an offer in compromise, help you get your account placed on currently not collectible status, or appeal collection actions taken by the IRS. If you are struggling to repay your tax bill, or have received a notice of an underpayment, contact Hone Maxwell LLP for assistance.