How IRS Collection Works

The Internal Revenue Service (IRS) is tasked with collecting taxes for the United States government. Without the tax dollars, the government would not have the funds necessary to operate its many divisions and social services. The federal taxes cover everything from funding the military to paying your congressional representatives salary and everything in-between. Because taxes are a vital part of keeping the federal government operating the IRS has been granted authority to collect unpaid/delinquent taxes.

While the IRS’s power to collect taxes is broad and can be intimidating, this federal agency has to operate by the rules in going about its mission of tax collection. While most people might view the IRS as ruthless agents doing everything necessary to get paid, you should rest assured that it will not send people to your home in a mafia-like fashion and threaten to break your legs unless they are paid. Although, it might feel like that when they demand payment and you do not currently have the funds to bring the balance to zero.

How does a person or business fall into the focus of the collections division? Usually, this occurs in one of two ways. First, the taxpayer filed a tax return without a balance due that was not paid. Also, there could be an instance in which the taxpayer did not file a tax return. In those instances, the IRS will create a return for the taxpayer. This is referred to as a substitute for return (SFR). Other instances might come up. For example, the IRS determines that you should not have received a specific tax credit and reverses it out of your return. In this instance, it might create a balance that is due to the IRS. In most instances, taxpayers enter the collections process through one of the first two situations discussed above.

The collection process, step-by-step, is as follows:

  1. The tax is assessed.
    • (This means the IRS has officially acknowledged that tax debt is owed to the federal government)
  2. The billing notice is sent to the taxpayer and it goes unpaid.
    • (The IRS sent a bill to the taxpayer informing them of the debt owed and providing them a time frame for which to make payment. The taxpayer ignores the notices or for some reason does not make the required payment.)
  3. A silent tax lien automatically attaches to the taxpayer's assets that are currently owned or acquired in the future.
    • (The only parties that are aware of the tax lien are the IRS and the taxpayer. The lien attaches automatically due to statute/law. Know one else knows of the lien at this point because the IRS has not made any official filing for a tax lien.)
  4. A final notice is sent to them by the IRS to the taxpayer. The notice informs the taxpayer that the IRS will levy wages and/or assets in order to collect the debt. Also, the taxpayer can request a collection due process hearing within 30-days of the notice.
  5. The IRS files a Notice of Federal Tax Lien in public records if the taxpayer owes more than $10,000.
    • (The tax lien is no longer silent. It is now public knowledge that the taxpayer owes the tax debt. So creditors and tax help companies look for these lists and start sending marketing materials to solicit business from the client. Having the tax lien can make it near impossible to obtain credit/financing for things like a home.)
  6. If we assume an appeal is not filed, the IRS will begin seizing the taxpayer’s assets to include garnishing paychecks, cleaning out bank accounts, and other actions.
  7. The process of seizing assets continues until the client does one of two things. First, they can contact a competent tax professional to assist them through the process and work out a tax resolution plan. Or, the taxpayer allows the IRS to continue grabbing assets until the debt is paid in full.
    • (Usually, the latter option of doing nothing cripples the taxpayer financially and puts them in a difficult situation.)

The seven steps above is a high-level overview of the collection process. If you find yourself at any step in the described process, please do yourself a service and retain assistance as soon as possible. The earlier a tax attorney can start to work your case the greater the opportunity to he or she can mitigate unnecessary damages as much as possible.

Bring Your Case to Our Team

At Napoleon Law Firm, our attorney routinely represents taxpayers in IRS civil tax cases located in Memphis and Jackson Tennessee; Southhaven, Horn Lake, Olive Branch, and Oxford Mississippi; and, West Memphis Arkansas. Because he is a licensed attorney, he can represent IRS cases across the country.

If you have any questions about IRS tax resolution; or any other IRS issue you might have, please feel free to contact me at (901-335-4541) or nyancey@napoleonlawfirm.com.

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