If the Customer Can’t Pay the Taxes III
The Collection Process
If you do not pay in full when you file your tax return, you will receive written notice of the amount you owe, a bill. This bill starts the IRS collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time period for collection has expired.
The first notice you receive will be a letter that explains the balance due and demands payment in full. It will include the amount of the tax, plus any penalties and interest added to your unpaid balance from the date the tax was due. You may pay the amount due by sending the IRS a check or money order, payable to the United States Treasury, with a copy of the notice.
For detailed information on paying your taxes by credit or debit card, or other electronic payment, go to http://www.irs.gov/uac/Electronic-Payment-Options-Home-Page, or call the IRS at 800-829-1040.
If you cannot pay in full, you should send in as much as you can with the notice. For tax payment options, refer to Topic 202. The unpaid balance is subject to interest that will compound daily and to a monthly late payment penalty. It is in your best interest to pay your tax liability in full as soon as you can to minimize additional charges. You also may want to investigate and consider other methods of financing full payment of your taxes, for example by obtaining a cash advance on your credit card or a bank loan because the interest rate and any applicable fees your credit card company or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.
If you are unable to immediately pay your balance in full, the IRS may be able to offer you a monthly installment agreement. To request an installment agreement, use the Online Payment Agreement Application (OPA) or complete and mail with your bill an Installment Agreement Request, Form 9465 (PDF). Complete lines 11a and 11b of Form 9465 to have the payment directly debited from your bank account. Direct debit installment agreements require a lower user fee than other installment agreements and help you avoid default of the agreement by making timely payments automatically. Some installment agreements can be established over the telephone. Interest and late payment penalties will continue to accrue while you make installment payments. For additional information on installment payments, refer to Topic 202.
If you cannot fully pay under an installment agreement you may propose an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax liability by payment of an agreed upon reduced amount. For additional information on OICs, refer to Topic 204.
If you are unable to pay anything because of a current financial hardship, the IRS may temporarily suspend certain collection actions, such as issuing a levy (explained below), until your financial condition improves. The IRS may, however, file a Notice of Federal Tax Lien (explained below) while your account is suspended. Please call the phone number listed on your bill to discuss this option. Interest and late payment penalties will continue to accrue while collection is suspended. If you are a member of the Armed Forces, you may be able to defer payment. See Publication 3, Armed Forces' Tax Guide, available on our website, at www.irs.gov, or by calling 800-829-3676.
It is important to contact the IRS and make arrangements to pay the tax due voluntarily. If you do not, it may take action to collect the liability.
Some of the actions the IRS may take to collect taxes include:
- Filing a Notice of Federal Tax Lien
- Serving a Notice of Levy, or
- Offsetting a refund to which you are entitled
The federal tax lien is a legal claim to your property, including property that you acquire after the lien arises. The federal tax lien arises automatically when you fail to pay in full the taxes you owe within ten days after the IRS sends the first notice of taxes owed and demand for payment, and it makes an assessment of the tax. The government also may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the Notice of Federal Tax Lien is filed. The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. Once a lien arises, the IRS generally cannot release the lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
The IRS will withdraw a Notice of Federal Tax Lien if the Notice was filed while a bankruptcy automatic stay was in effect. The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines that (1) the Notice was filed too soon or not according to IRS procedures; (2) you enter into an installment agreement to satisfy the liability unless the installment agreement provides otherwise; (3) withdrawal will allow you to pay your taxes more quickly; or (4) withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the government.
The IRS also may use a levy to collect taxes. The IRS may levy assets such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize your property for the purpose of selling the property to satisfy a tax debt including your car, boat, or real estate. In addition, any future federal tax refunds or state income tax refunds that you are owed, may be applied to your federal tax liability.
You may call the IRS at 800-829-1040 to discuss any IRS bill; have the bill and your records with you when you call.
You have rights and protections throughout the collection process. Please refer to Publication 1 (PDF), which provides additional information on Your Rights as a Taxpayer. More information on the collection process and your rights is available in Publication 594 (PDF), The IRS Collection Process, and in Publication 1660 (PDF), Collection Appeal Rights. These may be obtained by accessing the IRS website at www.irs.gov.
Source: Internal Revenue Service at http://www.irs.gov/taxtopics/tc201.html