How Does the IRS Federal Tax Collections Process Work and How Can I Avoid It?
For the 2020 tax year, the IRS collection process is no different than it’s ever been before.
Technically speaking, IRS collections begin as soon as you fail to provide your payment for taxes by the IRS Payment Deadline, at which point you officially owe back taxes and begin accumulated IRS Tax Penalties, but legally speaking, it begins when the IRS sends you an official letter that includes a bill stating the amount due, including any penalties and interest that they’ve tacked onto your original debt.
The IRS collection process runs until you’ve fully paid off your debt, or until the IRS can no longer find a way to legally collect funds from you, which typically requires either leaving the country or dying.
Read through the rest of this post to get details on how Federal tax collection works, and to get ideas on how you can prevent yourself from facing some of the worst parts of the process.
But Before We Get Into Details…
Before I explain how the IRS collections process works, allow me to introduce you to one of the best kept secrets regarding back taxes: the easiest way to get rid of them is to pay a hired gun to come in and negotiate on your behalf.
While some people make the claim that even a Tax Resolution Service or Debt Relief Expert can’t do anything for you which you couldn’t do on your own, for free, that may be true, but the simple fact is that they’ve going to do a better job than you could.
How many hours have you spent negotiating with the IRS? Battling with them over the legality of their claims, or minute contradictions in the IRS Tax Code? The right Tax Debt Expert can handle this process for you flawlessly, ensuring that you get the best settlement possible!
But I only trust one company to get this process right, and that’s the Tax Debt Relief Helpline. If you want assistance handling your back taxes, please call them now at 1-888-692-7108.
How to Avoid Collections By Appealing an IRS Collection Decision
If you disagree with an IRS collections decision and you think you can make a legal argument that’ll prove to a judge that your case should be thrown out and forgiven, then it’s time to look into the appeals process.
The IRS allows you to file a written protest, sending it back to the address found on the letter you received which detailed your rights to appeal the decision, and which could get prevent you from having to deal with collections entirely if you can make a compelling case!
Typically, you get 30 days from the date that you received the IRS collection decision to file this appeal, so keep in mind that you can’t just sit on this and hope it’ll go away, or wait for weeks and weeks before taking any action.
Just like I’ve explained elsewhere throughout this site, one of the most important things to Getting Rid of IRS Tax Debt is to take action immediately, because being proactive puts you in the best position to receive Tax Debt Forgiveness, create some kind of IRS Payment Plan, or at the very least, Negotiate a Tax Settlement.
Should I Appeal Myself or Hire Someone to Handle it For Me?
During the appeals process, it’s possible to represent yourself, but unless you’re a Tax Attorney or CPA, I’d highly advise against going it alone, because it puts you at a significant disadvantage vs the IRS employees who will be pursuing your case.
Remember, this is what these guys do for 40+ hours a week. It’s what they’ve built their careers on, and it’s how their job performance is decided. If anyone’s going to be good about making the case that you truly do owe the IRS money, it’s going to be the people you’re arguing with during the course of the appeals process.
Keep in mind too that you can’t just hire anyone you want to handle your case; whoever you bring on board must be authorized by the same IRS you’re about to go to battle with to represent taxpayers in these sorts of proceedings. Typically only certain types of attorneys and specialty CPAs will make that cut.
If you’re going to hire someone to take up the case for you and argue on your behalf, make sure to remember that you need to first fill out and submit the IRS Form for assigning “Power of Attorney and Declaration of Representation”, also known as IRS Form 2848.
Can Anyone Who Owes the IRS Money File a Collections Appeal?
Basically, yes, but as I mentioned earlier in this article, you’ve got to get your Appeal filed within 30 days of your official notification that the collections process has been initiated.
One thing you’ll need to keep in mind is that the IRS has different rules for people to handle an Appeals case, and it depends on how much you owe.
The breakdown in categories is actually a pretty small amount of money (all things considered), with the barrier being whether you owe more or less than $25,000.
Refer to your official collections notification letter to find out how much the IRS claims you owe, then see the section below that applies to the category that your debt falls into, again, over or under $25,000.
If You Owe the IRS More Than $25,000
If the amount you owe (plus penalties) for the is more than $25,000, then you’ll need to submit a formal written protest to the IRS to declare that you’re going to appeal the collections process.
In your official protest letter, you need to include all of the following information:
- Your name, address, and phone number
- A statement that you are appealing an IRS collection decision
- A copy of the letter the IRS sent you about the collection decision
- The tax period(s) or year(s) involved
- A detailed list of everything you disagree with and why you disagree with it. Be sure to include facts that support your position as this is going to be handled in a legal proceeding. If the law or some other authority supports your position, then you should include those details as well. For example, if you can get a US Senator, Congressional Representative, IRS Official, Judge, etc. to include statements defending your position, then you’ll have a better chance of getting the appeal request approved.
- This statement: “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief.”
- Your signature.
If someone else is submitting the appeal for you then that person should state that he or she is submitting the appeal and any supporting documents on your behalf.
Your legal representative also needs to state that the facts contained in the appeal and the supporting documents are true.
If You Owe the IRS Less Than $25,000
If the amount you owe the IRS plus penalties is $25,000 or less for each tax year that you’re supposed to be paying back, then you can file what’s called a Small Case Report.
Small Case Reports are easier to win, since the Government doesn’t want to waste time pursuing smaller debts, and they’re also significantly simpler to file. To submit a small case report, just follow the instructions in the letter you received from the IRS stating your right to appeal a collections decision.
This letter should reference a form for you to fill out. If it doesn’t, then you can use IRS Form 12203, also called the “Request For An Appeals Review” Form. Within this form, you’re going to need to list what you disagree with in the original collections ruling, and you should state exactly why you disagree with those claims.
Remember, this is a legal process, so the more evidence you can provide to support your argument, the better the chances you’ll have of getting your appeal approved.
What About Relief For Married Couples Who File Jointly?
Briefly, there are three types of relief available for married people who file joint tax returns, including:
- Innocent Spouse Relief: This is a program created for a spouse who had nothing to do with earning income and filing taxes incorrectly, or who may have even been lied to by their spouse who claimed that everything was taken care of properly. In these cases, one spouse essentially has to taddle on the other, but after explaining exactly how things went down, the “innocent spouse” is released from liability over the back tax debt, and allowed to escape all accumulated interest, penalties, fees and fines as well.
- Separation of Liability Relief: This means that you and your spouse are no longer jointly responsible for the tax liability. Instead, the IRS allocates your debt according to your individual liability, which could end up being a great deal for you, or which could make things even worse than they already are. This is going to depend on your specific and individual tax liability. If your spouse’s income is what led to the massive debt that you’ve failed to pay, then you may want to pursue this program because it could get you off the hook for whatever they did wrong.
- Equitable Relief: If you don’t qualify for relief under innocent spouse or separation of liability then your last hope is probably to go after the equitable relief program. you might be able to get equitable relief. This program was created to help people get out of tax debt, but requires some really complicated eligibility conditions. Basically, if you haven’t qualified for relief under the other two programs, you’ll want to check this one out too, but the odds of actually qualifying for equitable relief are pretty slim.
Hopefully, you’ll qualify for one of these programs, but if you don’t, then it’s time to look into alternative opportunities.
What If You Can’t Make Your Payments On Time?
If you’re sure that you have no hope of coming up with the cash you owe by your new due date, then you’ve got two options for dealing with this situation, each of which can be extremely useful for anyone that owes a lot of money, or simply doesn’t have enough laying around to make good on their debt.
Option 1: IRS Installment Agreements (Payment Plans)
Fortunately, the IRS does offer the ability to sign up for a payment plan, which stretches out your debt and allows you to make smaller, incremental payments.
The IRS officially calls these “Installment Agreements”, and while they’re not offered up front, it is possible to negotiate with the IRS to get enrolled in one of these, giving you some breathing room to raise funds.
You can also ask for an installment agreement by calling the phone number on your bill, which will connect you to IRS officials who’ve been authorized to help people get enrolled in payment plans.
Note that the IRS does charge a fee to set up an installment agreement, but remember, it’s definitely one of your best solutions if you’re sure that there’s no way you can raise the funds to pay them back before the bill comes due.
With IRS payment plans, you’ll have the option to have your installment payments taken out of your bank account automatically each month, or you can opt to pay them by hand, but keep in mind that you will still be accumulating interest and late fees even if you’re making installment payments on time – the IRS is not forgiving of people who fall behind on their taxes.
A word of caution. Even if you can’t pay what you owe the IRS, don’t let this keep you from filing a tax return, because if you fail to file, then the IRS will do it for you and they will calculate that you owe them on their own.
I’ve literally never heard of the IRS coming up with a total debt figure lower than what the taxpayer would have arrived at had their completed the calculations on their own, so don’t leave this part of the process up to the IRS because it’s going to end up costing you additional money.
The IRS will use information from your past returns and whatever income your employer reported to them to calculate what you owe, and since the IRS won’t know your current deductions and credits, the amount they think you owe isn’t just likely to be wrong, it’s likely to be significantly more than what you actually do need to pay.
Yes, you can file an amended tax return later to fix this problem, but why go through the hassle when you can head it off at the pass? Again, like I say throughout my recommendations on dealing with IRS debt, it’s almost always better to be proactive, confront the problem you’re facing, and try to take control before the IRS starts pursuing your funds on their own.
Option 2: The Offer in Compromise Program
Before you go agreeing to enroll in those installment payments I just explained above, it may be worth investigating your opportunity and potential for using the IRS’s Offer in Compromise Program (abbreviated OIC) to negotiate your debt down, and settle on a lower total payment amount.
The IRS has final approval of this process, of course, and I’ve written up an entire page detailing all the specifics of this program, which you can find here: The IRS Offer in Compromise Program.
You can also take a look at the IRS’s official Offer in Compromise pre-qualifier to find out if you’re eligible for the program, and this is a good idea because it’ll help you quickly determine whether or not it’s worth pursuing.
Important Note: Before you’re able to exercise either of the two options listed above, you will need to have already filed your tax returns and made the required tax payments for the year, or if you’re a business owner, made the required tax deposits for the quarter.
Asking the IRS to Determine Your Account is “Currently Not Collectable”
Another way to delay collection activity on your account is to ask the IRS to report that your account is “currently not collectable.
While this doesn’t get rid of your debt, it does give you a delay, and allow you some time to collect funds and prepare to repay whatever it is you owe.
All that you have to do to get the IRS to offer you this designation is to prove that the IRS cannot currently collect any funds from you.
Interest and penalties will continue to accrue while your account is in Currently Not Collectable status, but at least you won’t be hounded by their debt collectors since this is basically a command to call those dogs off the hunt.
If you go this route, then be aware that the IRS is going to ask you to prove to them that you can’t pay your debt, and you’re going to have to provide them with evidence to make that case, like by sharing details about your salary, assets, etc.
The IRS, via its Taxpayer Advocate Service, offers information about Currently not Collectable status, right here.
Active Military Personnel
If you’re active duty military, either stationed abroad or in a combat zone, then you may also be able to defer filing and payment, and therefore collections as well.
Look into the IRS process for Filing Extensions and Tax Return Preparation Assistance for Military Personnel Stationed Abroad or In a Combat Zone for more information on how this works.
What Can The IRS Do if You Refuse to Pay?
Once more, let me make it crystal clear that if you can’t make your payments, your best hope will always be to contact the IRS to arrange some kind of repayment schedule, via an Offer in Compromise, an Installment Agreement, or perhaps the IRS Fresh Start Program, because if you fail to get in touch with them and come to some sort of agreement, then the IRS can do all sorts of terrible things to your finances, including:
File a Notice of Federal Tax Lien
This is a legal claim to your property, for failure to settle your debts. It essentially means that the government can come and take anything you have or own, unless you make good on your debt before that occurs.
Note that a Notice of Federal Tax Lien happens automatically 10 days after the IRS sends you the first demand to pay letter and you don’t pay it, so for many people, they’ll already have a tax lien filed against their property before they’ve even decided whether or not they’re going to pursue an appeal.
Your creditors may also be notified that the IRS has just issued a claim against you as well, which is highly likely to appear on your credit report and damage your credit rating.
The IRS usually won’t release a lien until the amount they’re owed has been paid in full or they can no longer legally collect. However, in some cases the IRS will release a tax lien prior to payment in full, like when:
- The Notice of Federal Tax Lien was not properly filed
- You agree to be put on an installment plan
- Lifting the Notice of Federal Tax Lien will make it easier for you to quickly pay off your debt
- The National Taxpayer Advocate determines that it’s in your and the government’s best interest to have the lien lifted (this is rare)
Serve a Notice of Levy
Beyond filing a tax lien against you, the IRS can actually come and take whatever they’ve determined they rightfully owe, which is obviously far worse.
Serving a Notice of Levy means that the IRS will show up (or send agents on their behalf) to actually seize your property, including any real estate, bank accounts. Social Security, salary, tax refunds, etc. that you’re entitled to.
Ever heard of wage garnishments? They’re basically the simplest form of this process, but keep in mind that that’s one of the nicest things the IRS can do since that typically only means you’ll lose some percentage of future paychecks.
If the IRS decides to do so, they can literally take your house, business, or any other sort of investment that you’ve accumulated, basically as payment for the taxes that you’ve failed to pay off..
Can I Pay my IRS Tax Debt Online?
Yes. you can!
The IRS Electronic Federal Tax Payment System allows taxpayers to pay their taxes online.
You’ll need to enroll and receive your credentials before you can issue any payments, but this is probably the most convenient way to pay your tax debt in the modern era.
It’s definitely faster, simpler and easier than cutting a check and snail mailing it in to the IRS.
Does the IRS Ever Use Private Debt Collectors?
A few years ago the IRS started using private debt collection agencies to go after accounts that the IRS isn’t actively working on for one reason or another.
When this happens, the IRS sends you written notice both before and after the transfer to the private collection agency., basically to make sure that you’re not being scammed.
The private collection agencies currently being used by the IRS are:
- P.O. Box 2217
- Waterloo, IA 50704
- P.O. Box 307
- Fairport, NY 14450-0307
- P.O. Box 9045
- Pleasanton CA 94566-9045
- PO Box 500
- Horseheads, NY 14845
Be Wary of Anyone Else Who Tries to Collect From You!
If anyone else tries to contact you and claims that you need to pay them for IRS debt, you can safely ignore them, because these are the only legally authorized representatives who can pursue debt on behalf of the IRS.
Furthermore, these private debt collection agencies working for the IRS must also abide by the Fair Debt Collection Practices Act, which means that they can’t just do whatever they want to make threats or take funds away from you, so be sure that you’re familiar with these guidelines and make a stink if they violate your rights!
If you need to report a problem with any of the private debt collectors, then you can call the TIGA hotline at 1-800-366-4484 to report a complaint. You can also visit the Tax Inspector General For Tax Administration website or write to them using the following address:
Treasury Inspector General for Tax Administration
Post Office Box 589
Ben Franklin Station
Washington, DC 20044-0589
If you don’t want to work with the assigned private collection agency, for any reason, you should know that you can also write a letter to the IRS, letting them know you want someone else assigned, and the odds are pretty good that they’ll swap out collectors for you, especially if you promise to start making repayments right away.
A Word About Scams & Private Collection Agencies
The IRS will never call you before they send you several letters in writing through the mail. Any agency who calls you out of the blue is likely to be a scammer, so be sure that you don’t send any money or provide any personal information to anyone over the phone.
IRS Phone Scams have never been more popular, and even though you may think it’s easy to spot them, these scammers collect millions of dollars in funds that they truly don’t deserve each year, so don’t let your guard down because it’s really easy to end up getting tricked by the savvier scammers who’ve been at it for a while.
Another sign of a scam is when a collection agency tells you to pay your IRS tax debt directly to them or directly to the IRS, as this is not the way the process works
Your tax debt to the IRS should be sent directly to the IRS, and should be made payable to the U.S Treasury. Never pay a private collection agency directly!
Is There a Time Limit for IRS Debt Collections?
Yes, 10 years is the limit for how long the IRS is allowed to pursue your debt.
This time period starts when you don’t pay your taxes and the IRS sends you a bill for the money. The date on that bill starts the 10 year period, so if you can somehow avoid paying that debt for 10 years, then the IRS won’t be able to legally take any money from you.
This is why, as the Collection Statute Expiration Date (CSED) approaches, you can expect the IRS to get more aggressive about collecting from you.
The 10 year period can be suspended at times.. For example, if you file for bankruptcy or if you request to be put on an installment agreement. However, the suspension periods don’t count toward the 10 year period.
It’s also possible for someone to voluntarily extend the 10 year period. You might want to do this, for example, if you agree to installments. However, the IRS is not allowed to extend the extension beyond 6 years, which basically means that if you can fend them off for 16 years, then you can get away with not paying your taxes.
It’s important to note that no taxpayer is required to extend the 10 year period either. Even if the IRS pressures you to do so because of an installment agreement, you might be better off waiting until the 10 year period runs out.
Understand Your Right to Representation
When dealing with the IRS, you have a right to have someone else represent you.
If you need help finding representation, the IRS has a searchable directory of people who are qualified to represent you, including those with unlimited representation rights such as CPAS, enrolled agents, and attorneys.
Keep in mind that everyone needs a PTIN (Preparer Tax Identification Number) number in order to charge you money in exchange for preparing your tax return though, so if anyone says they can help you but is unwilling to provide this, then they’re probably a scammer who you’ll want to start avoiding immediately.
Also, anyone who is going to represent you must fill out the official IRS “Power of Attorney and Declaration of Representation”, also known as IRS Form 2848, so if someone says they can help, but won’t fill this out, then again, it’s time to head for the hills.
How to Contact the IRS for Additional Details
If you have any questions about IRS collections, you can always contact them directly for details on your account.
Simply call the phone number 800-829-1040 and have your bill and any necessary information ready, and they’ll be able to go through everything in detail with you.
Forms to Provide the IRS with Information About Your Finances
The following are six common forms the IRS requests when it wants information about your finances.
- Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals (PDF)
- Form 433-B, Collection Information Statement for Businesses (PDF)
- Form 433-F, Collection Information Statement (PDF)
- Publication 1854, How to Prepare a Collection Information Statement (Form 433-A) (PDF)
- Collection Financial Standards for completing the Expense section of Forms 433-A and 433-F
Where Can I Go For Additional Information?
If you need IRS Tax Debt Relief, first, feel free to review other pages of my site, where I go through all sorts of related debt relief programs, opportunities and processes in detail.
Some of the most important pages that you should review include my Guide to IRS Tax Penalties, my Guide to Back Taxes, my Guide to IRS Debt Forgiveness, my Guide to IRS Settlements, my Guide to IRS Debt Resolution Companies, my Guide to the IRS Debt Collections Process, and my Guide to the IRS Fresh Start Program.
To understand exactly how the IRS tax collections process works, the best thing you can do after reading this page is to look at the IRS’s official write-up on it, called “Publication 594”, which you can find here.
One other place to seek additional details is the IRS’s Taxpayer Bill of Rights, which you can review by watching this handy two-minute video explanation, or by searching Google for the phrase and then reading through the descriptions of 10 rights all taxpayers are entitled to.
For additional details on appealing an IRS collections ruling, read through the 4-page IRS Document Collection Appeal Rights.
If you’re worried about a tax liability due to your spouse mishandling a tax return, then one thing you’ll definitely want to do is read through the IRS’s tax information for innocent spouses carefully.
For any other questions, feel free to post a comment in the Comments section below, as I’m happy to provide specific advice about anything related to tax debt, and I’ll do my best to get you a response as quickly as possible.
Disclaimer: Information obtained from Forget Tax Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of the Treasury, the IRS or any other Government Organization.