The Internal Revenue Service (IRS) has a well-defined collection process to ensure taxpayers fulfill their obligations. Ignoring the issue is the worst thing you can do when you owe back taxes. The IRS has extensive powers to enforce collection, which can lead to severe financial and legal consequences.
However, understanding the collection process and knowing your options, you can navigate this challenging situation more effectively. For more detailed guidance on handling tax issues, you can find more on Tax Law Advocates website.
The IRS Collection Process
The IRS collection process starts as soon as you cannot pay your due taxes in full when you are supposed to. First, the IRS will send letters or notices to the taxpayer informing them of the amount owed and asking for payment. These communications become more demanding over time, beginning from a simple bill, and may lead to the worst if the money is not paid.
- Notice and Demand for Payment: The first stage of the collection process is the Notice and Demand for Payment. This is, in fact, a bill that highlights the amount that is due, including any charges, which could be fines or additional interest. You should not ignore this notice, but it is advisable to even if you cannot Honour it in full at this time.
- IRS Collection Notices: In case of failure to respond to the first level notice, the IRS will send other follow-up notices. Such papers may include the Final Notice of Intent to Levy and Your Right to a Hearing. This particular notice is important because it communicates the IRS’s intent to enforce the collection more rigorously, including using legal means such as freezing bank accounts or garnishing wages.
- Tax Liens: The IRS may file a Notice of Federal Tax Lien if you do not reply to the collection notices. A tax lien is a claim the government has against your property, including land, buildings, machines, inventory, and cash. This lien safeguards the government’s interest in your property and will be a massive detriment to your credit report, meaning that loans cannot be accessed and property cannot be sold.
- Tax Levies: A tax sale is the actual taking of your property to pay the tax owed, while a tax collection is the process of collecting the tax through other means without having to take a person’s property. The IRS is not limited to simply calling and threatening; they can freeze your bank accounts, take a portion of your paycheck, and more. This step is often taken when one has received several notifications to pay the debt and has done nothing to address the issue.
What to Do If You Owe Back Taxes
Being in the state of owing back taxes is not a joking issue, yet there are measures that you can take to deal with the problem without it having to affect your financial status.
1. Respond Promptly
The first and foremost activity is to reply to the IRS notice at the earliest. You must also leave it unsolved because it will only complicate matters and reduce your resolution options. While it may not be possible to pay the total amount, the existence of the debt must be recognized and maintained in communication with the IRS.
2. Assess Your Financial Situation
To do this, you need to assess your financial status, which is the first step before dealing with your tax issues. Lastly, it is essential to know how much you can offer to pay and whether any security can be provided for the debt.
3. Consider Payment Options
The IRS has provided taxpayers with several ways to pay taxes if they cannot pay them in full. These options include:
- Installment Agreements: Another option provided to a taxpayer is an installment agreement, in which you can pay the tax debt in installments within a given period. This can help avoid stressing your accounts too much to clear your debt and have it paid off.
- Offer in Compromise: An Offer in Compromise (OIC) is an agreement you reach with the Internal Revenue Service to pay less than the total amount of taxes, interest, and penalties you owe. This option can only be exercised by a taxpayer willing to prove to the authority that he cannot afford to pay the full amount or if paying the total amount would put him in a lot of debt.
- Currently Not Collectible Status: If you are not collecting money and are having trouble paying your taxes, you may apply for CNC or currently not collectible status. This temporarily freezes the collection efforts, but interest and penalties are still charged.
4. Seek Professional Help
The process of collecting the due tax by the IRS is daunting and requires one to get through many procedures. Hiring a tax professional, like a tax lawyer or an enrolled agent, can also be very helpful since they can give you legal advice and help you. These professionals can assist you in comprehending your choices, working out a resolution scheme with the Internal Revenue Service, and suggesting ways to pay back the amount you owe to the IRS.
5. File All Required Tax Returns
If you have outstanding tax returns, it is good to pay for the preparation of the taxes as soon as possible. The penalties for not filing tax returns or paying the required amount on time are that the IRS will not entertain any payment plan or mode of payment if the person has outstanding returns. While it may be impossible to pay the taxes stated in the return at the time, filing the returns will go a long way in demonstrating to the IRS that the taxpayer is willing and able to meet his obligations as required by law.
Conclusion
Being indebted to the government in terms of taxes is a very unpleasant state, but having a clue as to how the IRS works and the possibilities at the taxpayer’s disposal might make the ordeal a little less unbearable. Therefore, when the IRS sends you its notices, it is essential to answer them promptly, evaluate your financial position, and consider the possibilities of settling the amount of your tax debt, which will be possible in case of finding ways to pay. It can also be helpful to turn to a professional when you need someone to guide and assist you through the process and help avoid significant damage to your fiscal situation.