IRS collection activity just doesn't stop on it's own. It will happen after the tax debt has been:
a. Assessed (entered into the books as a debt)
b. You have been sent a notice of the debt and demand for payment and you don't pay. AND:
c. You received a “final notice of the IRS intent to levy and a right to a hearing” at least 30 days before the levy actually occurs and to your last known address.
But even if you have a tax debt and are concerned about losing most of your paycheck, there are a number of situations in which the IRS collection activity can't or won't occur:
1. INSTALLMENT AGREEMENT IN EFFECT
If you have negotiated a formal payment plan (or non collectible status) with the IRS and you have been making timely payments, the IRS cannot collect.
2. 30 DAYS AFTER TERMINATION OF INSTALLMENT AGREEMENT
If the Installment Agreement is terminated for any reason, the IRS cannot collect for a 30 day period after it issues you it's termination notice.
3. DURING APPEAL FILED WITHIN 30 DAYS OF INSTALLMENT AGREEMENT TERMINATION
If the Installment Agreement is terminated, and the IRS has provided you a 30 day notice AND you file a proper appeal within that 30 day period, the IRS can't collect until the appeal is heard.
4. OFFER IN COMPROMISE IS PENDING
The IRS won't collect while an properly filed Offer in Compromise is being considered.
5. DURING APPEAL OF REJECTED OFFER IN COMPROMISE
You have the right to appeal the rejected Offer in Compromise internally with the IRS. The IRS won't collect during that period and until the hearing is complete.
6. DEBT ASSESSED BUT FINAL NOTICE OF INTENT TO LEVY HASN'T BEEN ISSUED
The IRS can't collect until 30 days after it sends a “Final Notice of Intent to Levy” to your last known address.
7. DURING COLLECTION DUE PROCESS APPEAL FILED AS A RESULT OF RECEIVING THE FINAL NOTICE OF INTENT TO LEVY
The “Final Notice of Intent to Levy” provides the right to file an appeal. That appeal is called a “Collection Due Process Appeal”. If filed properly and you can prove the IRS received it, the IRS cannot collect until the hearing has been completed.
8. DURING A BANKRUPTCY PROCEEDING
Section 362 of the Bankruptcy Code creates an “automatic stay” that stops all creditors…yes even the IRS from collection activity. (Bankruptcy is helpful in other ways as well. It can even eliminate certain tax debt)
9. AFTER THE STATUTORY DEADLINE ON COLLECTION HAS RUN OUT
The IRS has a certain amount of time to collect a debt. 10 years to be precise, from the date the debt is assessed. Once that happens, the debt doesn't exist. (Calculating the 10 year period isn't always as easy as it seems)
10. NOT ENOUGH EQUITY IN AN ASSET
When the IRS is trying to grab an asset it must make sure that the asset has value above what is owed the bank on it. i.e. there must be “sufficient net proceeds” from the sale to apply some money to the debt. If you vacation home is worth $100,000.00 and you owe the bank $120,000.00, there is not equity and therefore no IRS collection.
11. IRS CONSIDERING THE SIEZURE OF YOUR PERSONAL RESIDENCE
The IRS won't just slap locks on the door of your home. It must first file a case in the US District Court asking for formal approval. This is a relatively rare procedure.
12. IRS CAN'T SIEZE CERTAIN PERSONAL ASSETS
The IRS is barred from taking household goods and furniture worth up to $7900.00. It also can't take child support, unemployment checks or clothing.
13. BUSINESS ASSETS OF AN INDIVIDUAL
The IRS won't take your business assets if you have other assets that will pay the debt. Even if you don't and it tries to take your business assets it must obtain approval from an IRS Area Director.
14. INNOCENT SPOUSE CLAIM
The IRS will stop collection when an Innocent Spouse Claim is properly filed and appealed.
15. DEBT IS INCORRECT
If you can provide some proof to the IRS Collection personnel that the debt is probably incorrect, it is supposed to slow down the collections process until the debt issue can be resolved (IRS Policy Statement 5-16)
16. IRS SUMMONS
If the IRS has issued a Summons, collection activity can't occur on the date you appear to meet with the collection personnel.
The IRS will suspend collection activity if you can prove that the collection result will create a real hardship i.e. power will be turned off, kicked out of apartment, inability to eat etc. This suspension is only temporary if you can't than provide additional required documentation within a certain time-frame.