IRS Tax Debt : Power of IRS to Collect It & What You Should Do

Tax Debt
By Prashant Thakur

irs tax debt offer in compromiseWhen a taxpayer has a tax debt , the Internal Revenue Code provides a number of legal provisions that can be used by the IRS  to collect it. The IRS tax debt can actually increase the demand periodically on account of interest on the tax debt, penalty sum for the delay in tax payments etc.

What IRS Can Do to Collect the Tax Debt?

Following is the list of measures that IRS can take against a tax debtor :

  • Impose  penalty for failure to pay the tax
  • Impose interest for failure to pay the tax debt
  • Issue a notice of IRS tax lien that can eat away  your credit
  • Serves a tax levy or tax seizure on your employer, under which the employer is required to begin paying most of your salary to the IRS. Please note that once the IRS serves a levy on your employer it will continue forever, or until the tax debt plus interest and penalties (which continue to accrue), has been paid in full. Don’t ask your employer to help you out by ignoring the IRS levy. Can employer favour you by paying salary first and not paying the tax debt to IRS ? The answer is no , because as per Internal Revenue Code, if the employer doesn’t pay money over to the IRS, the employer could be held personally liable for your tax debt.
  • Serve an IRS tax levy on your bank account/deposits
  • Serve an IRS tax levy on your wages
  • Employ a private debt collector to collect  tax debt from you.
  • Attach  your state income tax refund
  • Seize and sell your  assets like car or house
  • Initiate prosecution for the criminal failure to pay your taxes and send you to federal prison
  • If you have a business, the IRS can contact your customers, tell them that you have an IRS tax debt, serve a tax levy, and seize your accounts receivable.

What You Should Do to Settle IRS Tax Debt?

First thing to know is that section 7521(b) of the Internal Revenue Code provides every tax payer a right to consult an IRS tax lawyer or tax attorney . Here is the excerpt of the said provision

(2)Right of consultation

If the taxpayer clearly states to an officer or employee of the Internal Revenue Service at any time during any interview (other than an interview initiated by an administrative summons issued under sub chapter A of chapter 78) that the taxpayer wishes to consult with an attorney, certified public accountant, enrolled agent,enrolled actuary, or any other person permitted to represent the taxpayer before the Internal Revenue Service, such officer or employee shall suspend such interview regardless of whether the taxpayer may have answered one or more questions.

Therefore , advise number one is to seek assistance from  an IRS tax lawyer or tax attorney for tax relief if any IRS claimed tax debt. The tax attorney or lawyer can suggest you various steps to overcome the IRS effort to collect tax . The specific  steps may by anyone of the following depending upon the facts and circumstances of your tax debt:
  1. Applying for an Offer in Compromise . Pl see irs offer in compromise calculator for pre-qualifier
  2. Examining the reasons for tax debt and fining if there are  errors involved in a prior tax audit. If so, filing an application for rectification of tax demands.
  3. Requesting IRS for a short-term deferral of  tax debt so that you can have time to get back on your feet
  4. Examine if you are eligible for  the IRS Debt Forgiveness Program.
  5. Applying for an installment payment agreement so that you can pay your IRS tax debt over as long as 10 years or more.
  6. Examining if  the statute of time limitation applies to any tax debt that IRS is trying to collect
  7. Obtaining releases of IRS tax levies
  8. Find out  whether your IRS tax debt can be wiped out in bankruptcy
  9. Applying for releases of IRS tax liens on various assets and instruments ,so that you can obtain a loan to pay-off your tax debt
  10. Examining if the situation exist for declaring the tax debt currently uncollectible so that you can have a tax holiday from your old IRS tax debts
  11. Obtaining release of tax levies
  12. Negotiating innocent spouse relief to reduce or eliminate your IRS tax debt
  13. Filing abatement application for  interest and penalty on tax debt.
Therefore , it is advisable that in case of an IRS tax debt, help from  tax lawyers or tax attorneys will go a long way to ultimately settle the ongoing and future problems emanating from IRS efforts to collect the said tax debt.
Prashant Thakur216 posts 48 comments

Prashant Thakur is a tax advisor . He has written two books on tax laws of India. He regularly writes on his paid-only website http://taxworry.com. He is learning about the Internal Revenue Code of USA as many of clients and readers are of India origin and also are tax resident of USA . So . solving their tax issues require reference to IRC of USA.

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1 Comment
  1. IRS Interest Calculator online – Internal Revenue Code Simplified

    […] The IRS typically has three years from the due date of your return to assess your returns, change you filing, and bring a lawsuit against you. However, if you understate your income by more than 25%, the length is extended to six years.The statute of limitations  in facts does not apply in certain situation.For example, if you file a fraudulent return, never file a return, or evade paying your taxes , statute of limitation does not apply. In terms of actual collection, the IRS has about 10 years to collect any remaining tax debt. […]

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