4 Ways the IRS Can Collect Their Debt

When the IRS determines that you owe money, the collection process is steady and methodical. Below is an overview of four ways that the government commonly uses to collect tax arrears, some of which can have a serious impact on your business and your life.

1. Sending Notices

It starts with the CP501 notice, which is an assessment letter informing you of your tax liability, including any interest or penalties incurred due to nonpayment. If you don’t respond, you will usually receive three more notices in succession:

  • CP502: The language in this letter is more serious and often includes a demand for immediate payment.
  • CP503: This notice includes a due date and a short payment window, which is generally 10 days after receipt of the notice.
  • CP504: This notice is where the IRS will mention an intent to levy. If you don’t respond, it will conclude that you can’t or won’t pay voluntarily and the next step may be a Notice of Federal Tax Lien or Final Notice of Intent to Levy.

2. Filing a Federal Tax Lien

By filing a Notice of Federal Tax Lien, the IRS is making a claim against property you currently own and anything you acquire after the lien is filed. It establishes the government as a priority creditor if you file for bankruptcy or sell any real estate.

3. Filing a Federal Tax Levy

When a tax lien on your property fails to result in payment or a payment arrangement, the IRS can file a Notice of Levy to collect the money. Known as a tax levy, it is one of the most dreaded collection methods used by the government because it can entitle them to:

  • Impose a bank levy. The IRS can order your bank to block you from withdrawing money from your account for 21 days while it seizes funds and applies them to your tax debt.
  • Garnish your wages. Your employer will have to remit a large portion of your pay to the IRS until the debt is paid in full.
  • Seize property.  The IRS can confiscate assets like a house, motor vehicle, or boat, sell them, and apply the proceeds to the debt.
  • Withhold tax refunds. All of your federal refunds will be sent to the IRS instead of to you.

4. Using Private Debt Collectors

In December 2015, Congress enacted a federal law directing the IRS to use four private debt collection agencies to collect outstanding tax balances. These agencies are to pursue accounts that are no longer being actively worked by the government.

If one of the private debt collection agencies is assigned to your debt, you will receive written notice from the IRS that your account was transferred to a private debt collector, followed by a second letter from the collector confirming the transfer. These companies are supposed to respect your rights and follow the provisions of the Fair Debt Collection Practices Act, but as headlines suggest, not all debt collectors are civil.

Contact a Seattle Tax Attorney

If you receive a CP501 notice from the IRS, dealing with the issue immediately can save you a lot of time, stress, and money. Even if you can’t afford to pay your debts, a Seattle tax attorney can work with you to negotiate a payment plan with the IRS or propose another arrangement, such as an Offer in Compromise.  If the IRS has already filed a lien or issued a levy, we will vigorously explore ways to have them lifted or halted.

At Boeshaar Law, we will recommend the right course of action for your tax liability situation to best prevent your loss of money or property. For more information, contact us or call (206) 899-4860.

Written by Robert V. Boeshaar

Robert V. Boeshaar

Robert V. Boeshaar is a Seattle tax attorney committed to helping individuals and small businesses who are facing problems with the IRS. He believes in using his experience to serve others and to make a difference in their lives.