IRS Debt & IRS Collection FAQ
If I Owe, Can the IRS Take My Income and Assets?
Yes, the IRS can levy accounts, garnish wages, and seize other assets if you have IRS debt. The IRS will also record lien notices with the County where you live or have property.
Can the IRS Stop Me from Traveling?
The IRS will tell the U.S. state department about your debt if it's above $52,000 (as of Feb. 2019). The reporting of the debt to the State Department doesn't cause the Passport to be revoked. The State Department has it's own process for that purpose. You can prevent this from happening by arranging an installment agreement, filing an offer in compromise, filing an innocent spouse claim, filing a collection due process appeal hearing request, or setting up a payment plan with the U.S. Department of Justice. Click here for more information.
How Do I Prevent IRS Collection?
There are specific steps you need to take to ensure no IRS enforced collection takes place. You should file all "required" tax returns, make any "required" estimated payments, review your financial situation, and your IRS history to determine the best solution to propose to the IRS and then make that proposal to the IRS. Click here for more information.
How Do I Stop IRS Collection Once It's Begun?
Once the IRS issues a wage garnishment or bank levy, you will need to determine your best legal option and quickly submit your "proposal". You may end up filing an appeal, or proposing an installment agreement, non-collectible status arrangement, an offer in compromise (settlement proposal), or even file a bankruptcy. Any of the above would stop IRS collection activity.
What Is the IRS "Fresh Start Initiative"?
In 2011 and 2012, the IRS made several changes related to collection, lien, and other issues, that made it easier for taxpayers with IRS debt. The most significant changes were the expansion of the debt threshold for IRS streamlined installment agreement qualification, avoidance of tax lien notice filing in relation to that, and the reduction of the multipliers in an offer in compromise that helped reduce the amount necessary to settle the tax debt.
Is There a Time-Limit on IRS Collection Ability?
The law places a deadline to collect on the IRS. This deadline is typically called the “IRS collection statute expiration date”. (CSED) It can be more complex than it sounds, but generally the CSED requires that the IRS stop collection activity and remove the debt from it's system if 10 years have elapsed since the date the debt was "assessed". The 10 year period is extended plus some "penalty time" by anything the taxpayer does that forces the IRS to stop collecting like filing an offer in compromise, a bankruptcy, or requesting a payment plan.
What Are My IRS Tax Debt Options?
IRS debt can be paid in full, settled, challenged, or discharged in bankruptcy. The way you deal with it will depend on your financial situation, IRS history, and personal goals. Click here for more information.
How Can I Get IRS History Documents?
The IRS keeps a history of each tax year. These histories contain information that can be very helpful in determining how to deal with the debt. The history will include the age of the debt, when the debt's collection statute period date will arrive, which tax are returns are missing, which tax return need to be filed, whether the IRS has created any substitute returns, audited a tax year, dates related to collection appeals and audits and other important details. If you have a tax debt, obtaining information about your history will be the first step in determining how best to solve it.
How Do I Determine the Best Tax Debt Option?
In most IRS debt situations, the best path to take isn't obvious. A detailed review of your financial situation, IRS history, and debt amounts, are usually required to make the determination. It's usually best if that review is done by a licensed tax professional with experience dealing with IRS debt and collection matters. Most people with IRS debt don't qualify to "settle" the debt in an IRS offer in compromise, but there are other options that may allow for reduction of the debt.
What Are the Pros and Cons of Using IRS Non-Collectible Status?
If you can show the IRS that your income and asset situation won't allow you to pay living expenses and something toward your IRS debt at the same time, it will agree to place your collection account on hold or "non-collectible" status ("CNC Status"). The obvious benefit is that once you are placed in CNC Status, no collection will take place, and the collection statute expiration date will continue to run making the time period the IRS has to collect shorter. The downsides? The IRS will review your situation each year typically to determine whether you should remain in CNC status, it will record lien "notices" with the County Recorder's office, and the debt will continue to grow as the result of interest and penalties.
What Are the Steps to Be Placed on IRS Non-Collectible Status?
As a short-term solution, or if your debt is close to its collection statute expiration date, IRS non-collectible status can be very useful. The first step is to ensure that you will qualify. Have a professional review your IRS history and financials to help you make this determination. If you are a good candidate for IRS non-collectible status, your situation isn't temporary, and there is a large amount of time remaining on the 10 year collection statute expiration date, an offer in compromise may make more sense. Once it's determined that you qualify based on your history and financials, make sure your required returns are filed, and then prepare your information and submit it the IRS over the phone or by mail.
What Are the Pros and Cons of Using an "Ability to Pay" Payment Plan?
An IRS installment agreement based on your "ability to pay" is one that pays only a portion of the amount owed over the time the IRS has to collect the debt (Collection Statute Expiration Date). The primary benefit to this type of arrangement is that it's similar to the IRS Offer in Compromise in that the overall debt can be reduced. In an offer in compromise this reduction occurs as the result of qualification while the reduction occurs in an "Ability to Pay" plan because the 10 year collection statute date may run out while the plan is in place, removing any debt unpaid. If this type of arrangement is used, the IRS will often require certain assets to be liquidated and turned over and it will record a "notice of federal tax lien" with the County recorder's office.
What Are the Steps Necessary to Set up An IRS "Ability to Pay"
If you've determined that an IRS "Ability to Pay" installment agreement is your best option, you will want to ensure any "required" tax returns are created and filed, put together a financial statement and submit your request to the IRS.
What Are the Steps to Set up Streamlined Installment Agreement with The IRS?
If you've determined that an IRS "streamlined" installment agreement is your best option, you will want to ensure any "required" tax returns are created and filed, and call the IRS to set up the agreement. A 433-d form may need to be submitted in order to avoid new lien notice recordings.
What Are the Pros and Cons of Using a Full Pay IRS Payment Plan?
The big downside to an IRS "full pay" installment plan is that it pays the debt in full....obviously...but when no better solution exists, a full pay plan will help you to avoid IRS collection and it will sometimes provide you time to plan for a better option. A side-note...anytime a full pay installment plan is the final solution, penalty abatement should be considered.
What Are the Steps Necessary to Set up An IRS "non-Streamlined" Full Pay Payment Plan?
If you've determined that an IRS "non-streamlined" installment agreement is your best option, you will want to ensure any "required" tax returns are created and filed and request the non-streamlined agreement by calling the IRS.
Can I Use an IRS Payment Plan to Remove or Prevent an IRS Lien Notice Recording?
If the IRS hasn't recorded a lien notice, the lien notice can be prevented if the assessed debt amount is less than $50,000.00 and you allow the IRS to auto-debit the payment each month. If the lien notice has already been filed, the assessed balance will need to be paid to $25,000.00, 3 payments made, and a request for IRS lien withdrawal made in order to obtain a withdrawal of the lien notice.
Should I Look at Other IRS Debt Options Before Setting up A Full Pay IRS Payment Plan?
Probably. sometimes there are ways to reduce IRS debt, and/or pay less per month. Until you've had your financial situation reviewed and IRS history analyzed, you may not know what those options really are.
Why Is the IRS' "Ability to Pay" Agreement Unique?
The IRS "ability to pay" installment is unique for a few reasons. The first reason is that it's similar to the IRS' offer in compromise option in that the IRS is agreeing to a payment amount from assets and monthly income that won't pay the debt in full before the collection statute expiration date expires. Second, the IRS can demand that assets be liquidated and applied to the debt as a condition of the installment agreement.
Will a Payment Plan Stop IRS Collection?
Most arrangements made with the IRS have the side-benefit of stopping IRS collection activity. But…it's better to plan ahead and avoid it altogether.
When Should I Request an Extension to Full Pay with The IRS and
How Do I Do It?
When the IRS is positioned to levy, garnish, seize etc. a request for time to pay in full can be used to stop it from happening. However before making the request you should make sure you can actually full pay the debt within the 6 month period and that you don't have other...better options that should be used to deal with the debt that can also stop collection activity.
How Do I Qualify for An Offer in Compromise Based on An Inability to Pay?
The IRS does settle debts, but it doesn't settle them informally. It's required to apply a set of rules that determine your ability to pay the debt in full….or not. If it determines you can't full pay, it will usually agree to settle the debt for an amount that's based on a formula. So...in order to qualify, you have to prove that you can't full pay, that you can afford to pay the resulting settlement amount based on the formula, make sure all returns are filed, estimated taxes are being paid, and that you respond timely to any requests made by the IRS for information.
What Is "Reasonable Collection Potential" for An IRS Offer in Compromise?
The IRS offer in comproimise amount is based on a formula. The process isn't “informal”. the formula is used to determine how much you can afford to pay on the debt.
How Does the IRS Collection Statute Expiration Date Effect My Ability to Resolve IRS Debt?
The IRS collection statute expiration date is relevant to every IRS debt collection alternative. Understanding how it effects each one is important before setting off.
Can the IRS Collection Statute Expiration Date Change?
Yes, the IRS collection statute expiration date can change and usually not to your benefit.
Should I Ask the IRS to Forgive a Penalty and If So, How?
Removing IRS penalties only makes sense in a few specific instances. This may be contrary to popular thought, but for many with IRS debt, it's a waste of time.
Tax Debt and Bankruptcy. What Do I Need to Understand?
Yes. Sometimes it makes sense to use bankruptcy to deal with tax debt. There are a few scenarios that make bankruptcy worth considering.
What Are the IRS Innocent Spouse Requirements?
IRS debt other spouse's fault? It may be possible to convince the IRS to treat you as “innocent” and remove you from liability status.
How Do I Request IRS Innocent Spouse Relief?
Innocent spouse relief isn't easy to obtain. The first hurdle is understanding the requirements. The second is understanding the steps necessary to make it happen.
Should I Challenge an IRS Substitute Return?
The IRS substitute return may not be correctly done. Your return, if it's accepted, will reduce your tax debt. But…will it make sense to try and replace their return with your return?
Will a Missing Return Ruin the IRS Deal?
If a tax return is missing from your history, and you are trying to resolve tax debt with the IRS, the missing return will prevent the resolution.
Will New IRS Debt Ruin an IRS Deal?
If you've already reached an agreement with the IRS, new IRS debt can ruin it. care must be taken to ensure enough is being withheld to avoid new debt.
How Long Does It Take to Finalize an Agreement with The IRS?
There are a number of different ways to “resolve” a tax debt with the IRS. each one has its own unique process and timeframe.
What Should I Do if I Defaulted on My IRS Agreement?
You reached an agreement with the IRS, but you hit a short “bad patch” and missed a few payments. What now?
IRS Automated Collections vs. IRS Revenue Officer?
It may be important to understand the differences between working with IRS automated collections and an IRS revenue officer…
What if My IRS Debt Is Being Handled by A Private Collection Agency?
The IRS uses private collection to try and follow up on certain tax debt. This may play to your benefit.
What Are IRS Collection Financial Standards and Why Are They Important?
Your budget isn't really your budget for purposes of finalizing an agreement with the IRS. if you don't understand this, you won't understand your agreement.
What Do I Need to Know About IRS Form 433?
The primary document used by IRS collections to obtain information is IRS form 433. There are important things you need to know about this form before submitting it to the IRS.
How Do I Appeal an IRS Collection Related Decision?
The IRS is required to consider your appeal in certain circumstances. You are required to appeal at the right time and in the right way…
I Reached a Deal with The IRS. Will It Still Take My Refund?
If you've arranged an installment agreement with the IRS, or even reached a settlement agreement…the IRS is still going to take your refund...for a while.
How Can I Find Out What the Collection Statute Expiration Date Is?
The IRS' timeframe to collect the debt will run out at some point. Believe it or not, it often does before the debt is paid.
Will an IRS Lien Hurt My Credit Score?
The IRS lien notice is recorded at the county recorder's office. It isn't sent directly to credit reporting agencies.
Will the IRS Waive Penalty and Interest?
In certain circumstances it will do both. In certain circumstances it won't make sense to try.