Steps IRS Will Take to Collect on Your Debt

Posted by Siegel Tax Law on August 3, 2012

Until the IRS makes an assessment, there is no official tax debt. Assessments are based on tax returns filed by the taxpayers, returns the IRS files in place of returns a taxpayer neglects to file, or from changes the IRS makes to a return.

First Notice

If the taxpayer files a return, and the tax is not fully paid, the first notice sent by the IRS is Notice of Balance Due. If the IRS adds taxes, interest or penalties to a filed return, it will send a Notice of Proposed Changes. If the taxpayer fails to file a return, the IRS also sends a notice when it files a return for a taxpayer. A return that the IRS when a taxpayer fails to file is called a “substitute for return.” A taxpayer should file a return immediately to replace a substitute for return because the IRS does not credit the taxpayer for any deductions that can be claimed.

None of these notices allows the IRS to levy on the taxpayer’s assets to satisfy the tax liability. The IRS must send a Notice of Intent to Levy. Notices of Intent to Levy generally come with a 30-day warning period, giving the taxpayer time to act to stop the levy. The taxpayer has the right to appeal the Notice of Intent to Levy. While the appeal is pending (usually 3-6 months), the IRS generally cannot levy. The fundamental rule is DO NOT IGNORE the notice and communicate with the IRS to obtain more time and reach a fair resolution.

Federal Liens

The IRS can file a federal tax lien any time there is a delinquent tax debt. The lien is personal against the taxpayer and encumbers any real estate or other property the taxpayer owns. The Federal tax lien will appear on a person’s credit report. The lien will stay in place until the tax debt is paid in full or settled through an Offer in Compromise.

Notice of Levy

If a taxpayer does not take the proper action after receiving the Notice of Intent to Levy, then the IRS will proceed by issuing a Notice of Levy. Once a levy is received, the taxpayer is at great risk of suffering immediate harm.

A copy of the levy notice will be sent to anyone who has paid the taxpayer wages in the past or issued a 1099 to the taxpayer. An employer or business owner that receives a Notice of Levy for an employee or contractor is required to withhold a portion of the wages/income due and remit them directly to the IRS. The IRS can levy a huge percentage of a person’s pay. In 2012, a single person can be left with as little as $114.42 per week! Once initiated, the wage levy will stay in place on each and every paycheck until the tax debt is paid off unless that taxpayer takes the proper steps. For a 1099 recipient, a wage levy can be even more disastrous. Anyone who has previously submitted a 1099 for the taxpayer to the IRS will receive the Notice of Levy. This will prevent the 1099 recipient from receiving any income from the business or contractor until the levy is stopped.

A copy of the levy will also be sent to any bank that the IRS is aware of in which the taxpayer holds an account. All funds up to the amount owed will be frozen by the bank and sent to the IRS 21 days later. While the IRS does have authority to seize other assets, such as a house or a car, to collect on a tax debt, it almost never does so, except in cases of tax fraud.

A tax lien or levy means difficulty that can have disastrous effects on a person, family or business. Professional help from a tax attorney is a wise choice, the earlier the better. When you require IRS help, you need the most experienced taxation attorneys at your side. Put your trust in a tax relief attorney and let us handle the complicated tax law. Call now to achieve tax resolution.