August 7, 2019

How does the IRS Collect What You Owe Them?

Small Business
Ronald B. Allen

If you owe the IRS money, or at least they think you do, the first thing is that you will receive a CP14 notice. This communication tells you the amount owed as well as penalties and interest due. And, it explains the steps they want you to take to resolve the issue. For folks living and doing business in the Kansas City area, the first thing you need to do in this case is to contact someone like Exigo Business Solutions who can help you through the steps and protect your rights along the way. Here is a look at the process the IRS follows when they collect your money.

The IRS is a Federal Government agency and the country’s biggest collection agency. It is also the most feared because of the powers granted it by Congress. Having an idea about how the collection process helps and having someone experienced at your side, may not make it any more palatable to pay the IRS money but it may reduce what you have to pay and certainly help reduce the fear factor.

CP14 Notice

The first step is the CP14 notice. Now you know how much they say you owe including penalties and interest. And you know what they want you to do next.

CP501, 503, and 504 Notices

The CP501 notice is a reminder that you have a “balance due” with the IRS. If you do not respond to the CP501, you will receive another reminder called a CP503. And, if you do not respond to this one either, you will receive a CP504 which is a notice of their intent to levy property, funds, or state income tax refunds if you do not pay the amount due and pay it immediately. At this point, you do not want to ignore any more IRS communications if you want to avoid liens and levies. If you do ignore them again, you will receive “Letter 1058” which is the final notice of their intent to levy as well as a notice stating that you have a right to a hearing.

What Should You Do at This Point?

When a client has received any IRS collection notice, the accountant or tax attorney will talk to the client and find out if they have the ability to pay their due taxes in full. When the person cannot do this, then the person will sign a Form 2848. This form is a “power of attorney” document that also gives the power of representation to deal with the IRS. Then the IRS can legally disclose account information of the taxpayer to his or her representative. When the Form 2848 is signed the representative will immediately contact the IRS to put the process on hold. This helps to avoid things like the filing of a federal tax lien, wage or asset levies, or confiscation of a state tax refund. Now the task is dealing with what is owed when the person does not have the cash to pay in full. There are, in fact, a few options that the person can use to pay what they owe over time.  

Available Options for Payment  
120 Day Payment Option

A first choice, if you will have the money, is to file for an extension for a period of up to 120 days. If you can pay the full amount within 120 days, the IRS will not charge any fees for the extension. However, if you are late on 120-day payments, they will add interest and late penalties

Streamlined Installment Agreement

Taxpayers who owe up to $50,000 can apply for a “streamlined” agreement. Advantages of this repayment option are that the taxpayer does not need to provide the IRS with a financial statement and that payment can take as long as six years. If you owe up to $25,000 you will file a Form 9465 and if you own from $25,001 to $50,000 you will file a Form 9465-FS (part of the IRS fresh start initiative). Either form is submitted with the tax return or separately if the tax return has already been filed. The IRS will review the form and typically accept or deny within 30 days. Those more familiar with dealing with the IRS may choose to submit this form online via irs.gov or even call a contact at the IRS to negotiate an installment plan for payments.

Installment Agreements for More Than $50,000

These agreements require monthly payments by way of direct deposits or payroll deductions. Unlike with the “streamlined” process, the IRS will require personal financial information to decide just how much the person can and will be required to pay. Individuals will need to fill out a Form 433-A and business owners who have employees need to fill out a Form 433-B. Both of these are statements of collection information.

Currently Not Collectible

When the person has no assets and no income to pay, they may qualify for status as currently not collectible. The IRS will want to see financial information to verify this status and will periodically revisit the case to see if things have changed and if the person can pay. Typically the IRS will use Form 433-A or 433-B to make this decision.

Offer to Compromise

The last option that we list is to offer a compromise in which the person will pay less than what the IRS says they owe. Please note two things in this regard. The IRS says that the criteria or accepting compromises are very strict and that very few compromises are accepted in a given year. The other thing is that the IRS does accept such offers and there are tax experts whose clients benefit from such compromises. Having an expert at your side, like Exigo Business Solutions, can make all the difference. To offer a compromise, submit Form 656, Form 433-A, and Form 433-B if necessary.

What Are Liens, Levies, and Seizures?

If you cannot pay what the IRS says you owe, do not have good representation, and neglect to communicate with them, the IRS has ways to take your assets.

Tax Lien

When the IRS puts a lien on your property they notify creditors. This action will commonly show up on credit reports and damage your credit rating. The lien can also apply to property that you purchase after the IRS filed notice.

Levy

A levy is the power to seize by any and all means under Section 6331(b). The IRS collects late taxes on property on which there is a lien. This can be property which the taxpayer owns outright or property on which he or she is still making mortgage payments. Wages, Social Security benefits, tax refunds, and retirement income can also be levied by the IRS.

Don’t Feel Powerless Against the IRS

You may get a series of notices from the IRS and simply not have the ability to pay. Or you may, in fact, dispute how much they say you owe. In either case, you need experienced and competent representation. For help dealing with IRS on any level, and ideally, when preparing taxes as opposed to dealing with liens and levies, contact the experts at Exigo Business Solutions. We are on your side and will work to get the best result for you!

When Should You Expand Your Electrical Business?

Small Business

Non-collecting Sellers, Use Tax, and When to Report

Small Business

Making a Profit in a Skilled Trades Business

Small Business