IRS Tax Debt : Power of IRS to Collect It & What You Should Do
When 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.
- Applying for an Offer in Compromise . Pl see irs offer in compromise calculator for pre-qualifier
- 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.
- Requesting IRS for a short-term deferral of tax debt so that you can have time to get back on your feet
- Examine if you are eligible for the IRS Debt Forgiveness Program.
- Applying for an installment payment agreement so that you can pay your IRS tax debt over as long as 10 years or more.
- Examining if the statute of time limitation applies to any tax debt that IRS is trying to collect
- Obtaining releases of IRS tax levies
- Find out whether your IRS tax debt can be wiped out in bankruptcy
- 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
- 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
- Obtaining release of tax levies
- Negotiating innocent spouse relief to reduce or eliminate your IRS tax debt
- Filing abatement application for interest and penalty on tax debt.