Many American taxpayers will end up owing the IRS money after a tax return is filed (especially the business owners &/or self-employed). Unfortunately, in many instances, this tax debt cannot immediately be paid in full. As a result, the IRS Collection Division will come into play. The primary goal of the Collection Division is to obtain the most amount of money from a taxpayer in the shortest period of time. Never, ever doubt this, and don’t let them lull you into a sense of anything else.

Of course, the taxpayer’s goal may be exactly the opposite: pay the least amount of money in the longest period of time. This article will hopefully provide some answers to common situations in which a taxpayer will need to deal with the Collection Division and come out with the best possible conclusion.

Do

  • Understand your rights
  • Know your options
  • Prepare to explain why you have this tax debt
  • Request a new review if you cannot get a satisfactory resolution
  • Offer the IRS solutions to your tax debts.

Don’t

  • Ignore any IRS notices
  • Miss any deadlines
  • Assume the IRS agents know the rules they have to play by
  • Complete any IRS collection forms at the IRS offices
  •  Extend the statute of limitations for collections
  •  File any future tax returns late

Do understand your rights
If you are going to go it alone without a CPA representing you, before you meet with or speak with an IRS revenue officer, you must understand your legal rights with respect to the collection process. Make sure you obtain a copy of IRS Publications 594 and 1660 as soon as possible. Once you understand your rights, including when and where the IRS may contact you (not at your workplace unless you agree, not after 9 pm, etc.), you are ready to discuss your situation with the IRS. If you hire a CPA to represent you, you can choose to not have the IRS contact you at all.

Do Know your Options
If you owe the IRS for a balance due on your tax return, you basically have five options. It is imperative that you understand (or discuss with your CPA) each and every one of these options to determine which may apply to your specific situation. Your options:

  1.  Pay the IRS in full immediately to get the IRS out of your life.
  2.  Set up a monthly payment (installment) agreement
  3.  Pay less than the full amount owed via an Offer in Compromise
  4. Have the IRS agree to place your account in a “currently not collectible status” and pay nothing now
  5. File for bankruptcy (only makes sense in very specific circumstances)

Do prepare to explain why you have this tax debt
The IRS will want to know the cause for the inability to pay the tax bill on time. The IRS is much more willing to work with taxpayers for which this is a one-time occurrence (perhaps due to a death, disability, illness, divorce, job loss, etc.) than for a taxpa6yer who has the same tax debt issues year after year. Once the IRS understands your situation in full, it can then perhaps begin to work out a favorable solution. However, don’t expect to see any measure of sympathy from the IRS (an agency not known for its sympathy).

Do request a new review if you cannot get a satisfactory resolution
If you cannot get a satisfactory result with the current IRS employee handling your case (which is very common), you are permitted to have an IRS manager and IRS Appeals review the determination. In order to do so, you must observe very strict time deadline. The failure to meet these deadlines may limit your chances for a Collection Due Process hearing with the IRS Appeals Division. In many cases, the person reviewing your case will take a more favorable view of the case from the taxpayer’s perspective, and this option should always be explored.

Do Offer the IRS solutions to your tax debts
The IRS likes to control the collection cases by imposing rules and deadlines. You can regain some control by offering the IRS a solution to your problem before the IRS makes any proposals. In rare cases, the IRS will accept your offer without making any counteroffer. In other situations, your proposed solution will be met with a counter-proposal (or a denial, in which case you just appeal and talk to another agent about resolution). In any event, the revenue officer understands that you are serious about resolving the tax debt and are trying to work (and cooperate) with the IRS as much as possible. As such, the revenue officer may be more likely to work with you to come to a reasonable resolution of the collection issues.

Don’t

Do not ignore any IRS notices
The IRS Collection Division will not go away by ignoring any notices. If you fail to reply to an IRS collection notice, the IRS will, at some point, begin to use enforced collection means against you. Theses may include filing a tax lien, seizing bank accounts or other financial accounts, garnishing wages, etc. You will never benefit if you let the tax debt get to this stage. In order for you to retain any control over your situation, you must respond timely to any and all collection notice.

Do not ignore any IRS notices
The IRS Collection Division will not go away by ignoring any notices. If you fail to reply to an IRS collection notice, the IRS will, at some point, begin to use enforced collection means against you. Theses may include filing a tax lien, seizing bank accounts or other financial accounts, garnishing wages, etc. You will never benefit if you let the tax debt get to this stage. In order for you to retain any control over your situation, you must respond timely to any and all collection notice.

Do not assume the IRS agent(s) know your rights, care about those rights, or will stick to the rules
Admittedly, there are good IRS agents. But, there are a lot of poorly trained, power trip agents as well. They do not all know the rules (and/or your rights) and often times don’t care. They will ask for things they don’t have a right to, and they will try to trick you to offer up information (like where you bank), so they can seize funds without your consent.

Do not miss any deadlines
If you agree to make a payment on a certain day of the month (either electronically or via check), you must make this payment, or you will face some negative consequences with the IRS. The same is also true of any documents or other information that you have agreed to provide to the IRS revenue officer. If you know that you will miss a deadline, it is important to contact the IRS before the deadline to inform them of the situation. Otherwise, be on time.

Do not complete any IRS collection forms at the IRS offices
These collection forms will determine your current and future ability to pay the tax debt. Most taxpayers are nervous when in the IRS offices (and also may lack all necessary financial record), and thus are likely to miss vital information concerning assets, liabilities, income and/or expenses. Do not complete them at the IRS office. Instead, tell the IRS employee that you would like to complete these forms at home to ensure that all information is correct. They should agree to this, because what IRS employee would want incorrect information?

Do not extend the statute of limitations for collections
The IRS has ten (10) years from the date the tax is assessed to fully collect the debt. Any debt not collected within these ten years cannot be legally collected. For example, if you file your 2012 Form 1040 on April 15, 2014, the IRS has until April 15, 2024 to collect the debt. Unless you absolutely need to extend the ten year statute of limitations (such as to prevent an immediate seizure of your property), you will not benefit from any extensions and the IRS cannot force you (directly) to extend it.

Do not file any future tax returns late
Before the IRS Collections Division will begin negotiating with you on your tax debt, it requires you to be in full compliance with all tax returns filings (including income, employment, gift, etc.) As such, if you are missing any returns, you must file them ASAP and also remain current with all future filings. This is one issue for which you have complete control.

If you follow the advice included in this article, you will begin to understand the options you may have with resolving an IRS tax debt and some general strategies. The more education you have in your fight with the IRS (including reading its publications), the better your odds with respect to a successful resolution.

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Dan Lucas

As the President and Founder of Credo, Dan advises clients with a strategic CFO mentality, in all aspects of accounting, finance, tax, operational strategy and best practices. He also directs the Credo team in establishing the strategies for the growth of the firm and continually raising the bar on its standards of exceeding clients’ expectations.
He has accrued broad financial experience working with companies ranging in revenues from $50,000 to $60 billion.Dan has worked with technology services, software, real estate, retail, manufacturing companies, professional services firms, marketing/advertising agencies, dental practices, medical practices, and various other industries, providing each with the specific financial guidance needed to establish sustained business growth and financial health.
Dan Lucas
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