If you can’t afford to pay your tax bill, it might be tempting to ignore it in the hopes that it will just go away. But unfortunately, that’s the last thing that will happen.
If you owe the IRS money, there is one absolute certainty: they will eventually collect this debt from you, one way or another.
The good news is, those “ways” come in many different forms, and most of them are designed to help you repay your tax debt in a way that is manageable to you, based on your financial situation. The best way to find out about these different options is to speak to an independent tax advice firm, who can not only walk you through all your options, but can deal with the IRS on your behalf in order to negotiate the best possible solution, and take the stress and worry off of your plate.
However, if you ignore your IRS tax debt, they will eventually enact the “worst” way, which is when they send you to collections. This happens if you ignore all requests from them to pay your debt or engage in communication, until eventually they will start taking actions to force repayment of your debt through other means, such as wage garnishments, liens, and property seizures.
Below, we’ll explain all the basics of what happens if the IRS sends you to collections.But if you’re facing the stress of a tax debt you can’t pay, don’t suffer in silence any longer. Call us at Tax Relief Helpers, and our experienced team of tax experts will help you avoid the threat of collections, navigate the process with the IRS, and resolve all your tax debt worries.
What is IRS collection?
If the IRS sends you a tax bill that you continuously ignore – despite several notices, reminders, and warnings – it will eventually go to “collections”.
When this happens, it means that the IRS will start to employ the various processes and methods available to them to more forcibly collect your tax debt, which can include applying liens on your property, seizing your assets, and assigning private collection agencies.
However, contrary to popular belief, the collections process for unpaid taxes isn’t a highly aggressive and threatening one. Not only does the IRS give you plenty of opportunity to resolve your tax debt prior to going to collections, but it continues to do so once you’re deep in the process.
Essentially, if “the IRS sends you to collections”, it’s because you have not voluntarily responded or replied to any of their notices, and it means they have started to enact various processes in order to force repayment of your debt.
But as long as you engage in communication with the IRS – whether directly, or via an intermediary such as the Tax Relief Helpers who can assist you through the entire process – there is usually no need for things to escalate as far as your assets being levied.
The IRS collections process for unpaid taxes
Reaching the stage of collections doesn’t happen quickly, and it will never happen without warning. The IRS works on a very process-driven approach, and you will receive multiple letters, alerts, and opportunities to resolve the debt before collections are initiated.
The process leading to collections is, broadly speaking, as follows:
- You file your tax return, and the IRS processes the return – usually within about four weeks.
- If you owe the IRS tax, you’ll receive a Notice of Balance Due outlining the amount you need to pay, payment options, and the payment due date. You’ll also be alerted to the penalties and interest that will accrue.
- If you don’t pay or contact the IRS before the stated deadline, a federal tax lien will be automatically issued against your property. This is a legal claim to your property, including any property you acquire subsequent to the lien arising.
- In some cases, a Notice of Federal Tax Lien may be filed in public records to notify your creditors of your text debt, which can have a big impact on your credit score.
- The IRS will continue to send you a series of notices and warnings, outlining the steps you can take to release the lien (payment in full, or other settlement options), or warnings as to the next steps they will take otherwise.
- If you continue to ignore all contact, you will eventually receive one final notice called the Notice of Intent to Levy and Notice of Your Right to Hearing.
Once you have received this final notice, the IRS will start to take action to force repayment of your debt. These actions can include:
- Wage garnishment. Collecting money directly from your paycheck.
- Seizing (levying) your monetary assets. In addition to your wages, this can include your bank accounts, social security benefits, and retirement income.
- Seizing (levying) your property. This includes cars, boats, real estate, and anything else that can be seized and sold to satisfy the tax debt.
- Seizing future tax refunds. Finally, any future federal or state tax refunds that you’re due can be intercepted and applied against your debt.
- Revoking or denying new passports. If your tax debt is classified as seriously delinquent, your passport can also be revoked or a new passport application or renewal denied.
The process by which this all happens can vary. IRS collections will either be handled by your local IRS service center, the ACS (Automated Collection Systems), or – in more severe cases – assigned to a private collection agency (PCA).
While PCAs are often the most feared aspect of IRS collections, the reality is that there are strict rules in place by which they must operate so it’s nothing like the movies would have you believe. That said, they will contact you regularly, and often arrange to visit you in person, and there’s no denying it’s a process most people would rather avoid.
Private collection agencies, tax liens, asset seizures, and passport revocations are all serious consequences that understandably instill fear in anyone facing a tax debt they cannot pay. However, it is rarely necessary for things to get to this stage, as there are several options for resolving tax collections status and managing your tax debt.
Options for resolving tax collections
From the very first Notice of Balance Due, there are a range of options available to you to resolve your tax debt in a way that will suit your current financial situation.
Even if you have been burying your head in the sand through all their warnings and are already at the collections stage, these options usually remain valid.
These tax debt resolution options include:
- An Installment Agreement, whereby you negotiate a payment plan with IRS collections to pay off your debt over an agreed period of time.
- An Offer in Compromise, where the IRS agrees to settle your debt for less than you owe.
- Currently Not Collectible status, where the IRS may agree to cancel your debt until your financial situation improves sufficiently that you are able to pay.
There are also penalty abatement options, Fresh Start programs – which include Tax Lien Withdrawals, and other options available to you.
Despite its reputation, the IRS is not looking to drive anyone into poverty, and for this reason offers many resolution options to ensure you are able to repay your tax debt in a manageable way.
As long as you engage in conversation with the IRS, you will be able to resolve your tax debts. The bigger problems will only arise if you try to ignore them.
Impact of IRS collections on your credit score
An important thing to remember if the IRS sends you to collections is the impact it will have on your credit score.
Tax liens are one of the first things the IRS will do as part of its collection efforts, and this usually results in a public notice to all creditors.
Once you have a public record of a tax lien in your name, your credit score is likely to plummet, making it difficult to secure credit or loans in the future.
This is just another reason why it is always recommended to face up to your tax debt as early as possible. If you’re in conversations with the IRS – they won’t start the collection process.
Negotiating a payment plan with IRS collections
Whether you have just received your first notice of balance due, or have already been sent to collections, it is possible to resolve your tax debt and avoid all of the problems and stress that come from the IRS sending you to collections.
Even if you can’t pay your tax debt, there are many steps you can take to avoid the IRS’s most severe collection actions such as seizing your assets and property. The most common solution is to negotiate a payment plan with the IRS, whereby you agree to pay your debt in manageable installments and they subsequently stop all collection efforts.
However, we understand that dealing with the IRS can be confusing, overwhelming, and intimidating, which is why people often find themselves facing the threat of collections rather than trying to manage it. And this is where Tax Relief Helpers can help.
At Tax Relief Helpers, we’ll review your case in detail, explain the best options available to you, handle all communication with the IRS on your behalf, and negotiate the best possible solution.
Tax debt is stressful, and the threat of being sent to collections can add even more strain to the situation. Don’t let it. Give us a call, and let us help you resolve your tax debt.