Understanding IRS Enforced Collection Actions
Sometimes, the IRS will stop “playing nice” and be more forceful with collecting your taxes. When it comes to claiming overdue taxes, the IRS has a wide variety of collection tools, the worst of which are liens and levies that garnish your wages, seize the contents of your bank account, and force the sale of assets (like your home) to satisfy your tax debt.
Fortunately, the IRS does not generally use these forceful measures unless voluntary compliance fails. Below is an overview of the forced collection tools and how a tax attorney can help you overcome them.
The IRS Starts with Letters
The IRS will send multiple notices before taking enforced collection action. Each one escalates in urgency until it sends you a LTR1058, otherwise known as a ‘Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing.’ This letter is usually your final warning before the government initiates an enforced collection action.
Tax Levy
Internal Revenue Code §6331(a) allows the IRS to collect a tax debt by seizing any of your property that is being held by a third party. Levies may be made on your salary, bank accounts, securities, accounts receivable, and other assets that generate or represent income. If these assets are not sufficient to satisfy your tax liability, the IRS may also attempt to seize physical property.
Tax Lien
According to Internal Revenue Code §6321, the IRS can collect its money by placing a lien upon all property that you own or have an interest in. The lien equals the amount you owe, including any interests and penalties. A federal tax lien has a 10-year statute of limitations, which can be extended due to tolling events such as:
A bankruptcy filing
Seeing a Taxpayer Assistance Order
Request for a Collection Due Process Hearing
Trust Fund Recovery Penalty
If you own a business that is delinquent in paying employment taxes (including Social Security and collected excise taxes), the IRS may assess a Trust Fund Recovery Penalty. These taxes are known as ‘trust fund’ taxes because the money is held in trust until you make a federal tax deposit.
A Trust Fund Recovery Penalty can be assessed against anyone who is responsible for collecting or remitting income, employment, and excise taxes and intentionally fails to pay them.
How to Avoid Enforced Collection?
The best way to deal with enforced collection actions is to avoid them. If you cannot afford to pay your tax debt, there are steps you can take to prevent your income and assets from being seized.
Payment Plan: If you have filed all of your tax returns and are current on your taxes for the present tax year, you can propose a payment plan to the IRS. There are different IRS installment agreements designed to address how much you owe and whether the taxes are personal or business-related. While a payment plan is pending, the IRS cannot issue levies and after it is accepted, there will be no enforced collection action unless you default.
Offer in Compromise: An offer in compromise (OIC) is an agreement that settles your tax debt for less than the full amount owed. In general, the IRS will an OIC if all of your tax returns have been filed, you are current on your tax payments, and the amount you offer equals or exceeds the amount it could reasonably expect to collect from you. It may also agree to an OIC if there is legitimate doubt regarding your liability or collecting from you will result in economic hardship.
Contact Safeguard Law, PLLC
Receiving a letter or notice of proposed adjustment from the IRS can be incredibly stressful. At Safeguard Law, PLLC we will help you navigate the audit or review the accuracy of the assessment, look for ways to minimize any tax liability and propose a payment for the remaining balance.