IRS Collections Process

Understanding the IRS collections process is a daunting task, even for those who deal with the IRS on a daily basis and have a broad understanding of IRS tax problems. We thought it would be a good idea to explain a bit about what we know of the collections process and to make public our IRS Collections Process Chart so you could understand what the IRS is sending you and why.

While the basic collections process doesn't change much over time, the tactics used by agents within the process change constantly. If you haven't already done so, we encourage you to visit our Individual IRS Notices page or our Business IRS Notices page to identify the specific notice you received from the IRS. Then come back here to review your IRS notice against the chart. You can combat your IRS tax problem if you know what you're up against. And as always, if it feels like you're in over your head, feel free to give us a call. We're here to help when you need us.

The IRS Collections Process Chart is largely self explanatory, but we added descriptions of the more serious notices below the chart for your convenience.

IRS Collections Process Chart

Tax Masters developed the IRS Collections Process Chart to graphically represent the basic movement of the process the IRS uses to collect outstanding tax debt. Most browsers make viewing this type of file a cinch, but if you have problems viewing the file or if you would like a PDF version of the chart, click here.

Tax Collection Process

IRS Demand for Payment

The IRS uses demands for payment when you have a balance due according to their records. This may be an existing tax liability you know about, or it may be that the amount you owe is related to a change the IRS made on your tax return. Changes to the amount you owe the IRS can also come from tax audit results and can be a result of the accruing penalties, interest, and fees that immediately accelerate your simple tax liability into an ever-increasing and snowballing tax debt.

A Note about Direct Contact with the IRS

At any given time in the IRS collections process, the IRS may try to contact you, your neighbors, your employers or clients, and anyone else they deem relevant to their collections efforts. Particularly if you're contacted directly by a revenue officer or an IRS agent (or any employee of the IRS), what you say can and will be used against you. It's difficult to know how much to say in reply to an IRS question. If you give too many details, the IRS finds other things they can use to collect even more revenue. But if you don't give enough information in response to their questions, you can be accused of tax evasion or even tax fraud. That's why we counsel our clients to let us speak to the IRS on their behalf. If you choose to forego representation in front of the IRS, please understand that the IRS assumes you know tax law and that you are effectively your own tax attorney. Tread very carefully through that trap-filled maze. And if you have any doubts about your ability to handle your own tax relief case, contact us for help. We do this every day.

A Timely Response is Important

A demand for payment that has a timeline on it is serious. These deadlines can vary from 10 to 30 days. Do not wait until the last day to respond or you will serious limit your options.

The IRS may send various types of notices to try and get you to respond and pay your delinquent tax debt. If this is the first IRS notice you receive, the IRS should not be able to levy your property, accounts, or wages without sending you a Final Notice of Intent to Levy Property and Notice of Right to a Hearing. This letter gives you 30 day for the IRS to receive your response. Do not get too comfortable. Depending on your situation, the IRS may already be putting the pieces in place to levy your property, accounts, and wages, effectively making your tax debt more difficult to repay. Calling a tax relief and resolution firm is a good option for you at this point. If the IRS enforces a lien or levy and this is the only type of notice you've received, you have recourse to get your property back.

Respond within 10 Days

As with the 30-day notice, a demand for payment with a timeline deserves your undivided attention. The IRS uses forms like CP 501 to remind you that you have an outstanding tax debt and to let you know that there will be consequences if you refuse to pay or contact them within 10 days. The notice may discuss your particular tax problem in depth, but certainly it will include things like a notice of potential third party contact, a 12-page tri-column publication with all the information the IRS thinks you should know about the IRS collections process (much more convoluted and hard to understand than what you see here), and information about your constantly accruing penalties, fees, and interest. At this stage of the collections process, the IRS is poised to start taking your stuff and to hand your debt over to a third-party collections agency if they so choose. As a taxpayer, your time has just about run out at this point unless you act. If you receive a 10-day notice, it's time to seek help with your tax problem.

IRS Notices of Intent to Levy Your Property

At a certain point, the IRS will shift their focus from reminding you that you owe them money and that the penalties, fees, and interest are accumulating to the fact that they can take your stuff if you don't pay. The IRS wields their power of seizure very effectively as leverage against you to force you to pay your tax debt. Even thought the IRS is threatening to levy your property, accounts, and benefits, you still have a way out and you might benefit greatly by seeking IRS tax relief.

Notice of Intent to Levy Property

A notice in which the IRS makes known their intent to levy your property, accounts, or wages typically identifies the assets they plan to attack. Common assets that the IRS will levy are any real property you own including houses and land, up to 15% of your Social Security benefits payments, and all or part of the money in your existing bank accounts. Another common practice of the IRS is to put a lien against your house to keep you from selling the house until they receive payment. If you allow the IRS to put liens and levies on your assets, your credit rating gets shot and it will feel like they are hemming you in to a corner. And they are. It is the job of the IRS collections process to collect revenue. At this point in the process, you need help solving this issue unless you can pay the IRS in full.

Final Notice of Intent to Levy and Notice of Your Right to a Hearing

WARNING. CP 90 is the last notice you will receive from the IRS before they take your property, your money, your Social Security benefits, your wages, and anything else they think will prompt you to pay them what you owe. If you receive this IRS notice, you have a serious tax problem and you need some seriously competent help to get you out of the situation you are in. We strongly counsel you to seek help in this situation to avoid losing your property, your credit rating, and your best shot at settling your tax debt.

IRS Files Notice of Federal Tax Lien

When the IRS files a federal tax lien against you, it can turn your world upside down. Filing a federal tax lien gives the IRS legal claim to your property as security or payment for your tax debt. The lien attaches to all your property and accounts receivable if you are a business. If the IRS files a federal tax lien against you, the effects include the following:

  • IRS notice warns all creditors that a federal tax lien has been filed against you
  • Lien damages your credit rating
  • Lien means you will have difficulty buying, selling, or refinancing any property
  • IRS can garnish your wages, Social Security payments, and retirement pension payments
  • IRS can seize and sell your house, your car, and any other property you own to pay your tax debt

If the IRS has filed a federal tax lien against you or someone you know, the world is not ending. However, it will take a good deal of guidance to get your world put back together so you'll recognize it. Even if you have fought the urge to seek help all through the IRS collections process, it's now time to deal with this head on and call in the reinforcements. We're here to help if you need us. Call Tax Masters for serious tax relief today and sleep better tonight.