Collection Process

long-term payment plan installment agreement payment method options

- pay through Direct Debit (automatic monthly payments from checking account) also known as Direct Debit Installment Agreement (DDIA) - make monthly payment directly from a checking or savings account (Direct Pay) - make monthly payment electronically online or by phone using Electronic Federal Tax Payment System (EFTPS), enrollment required - make monthly payment by check, money order, or debit/credit card (fees apply when paying by card) Fees apply for certain things

property that CANNOT be levied

- school books and certain clothing - fuel, provisions, furniture, and personal effects for a household (cannot exceed $9,790 in 2021) - books and tools used in the taxpayer's trade or business or profession (cannot exceed $4890 in 2021) - unemployment benefits and certain public assistance payments - certain annuity and pension benefits - certain service-connected disability payments and workers' compensation - salary, wages, or income included in a judgment for court-ordered child support payments - minimum weekly exemption for wages, salary, and other income

appealing the filing of a Notice of Federal Tax Lien

- the IRS is required by law to give written notice of the taxpayer's right to a Collection Due Process (CDP) hearing not more than five business days after the first Notice of Federal Tax Lien for each tax liability - at the conclusion of the CDP hearing, the IRS office of appeas will issue a determination; the taxpayer will have 30 days after the date of determination to seek review of the determination in the US tax court

IRS generally may not levy against property:

- while a request for an installment agreement is being considered - while an installment agreement is in effect - for 30 days after a request for an agreement has been rejected - for 30 days after termination of an installment agreement (due to taxpayer default) - while the IRS Office of Appeals is evaluating an appeal of the rejection or termination However, the IRS may file a Notice of Federal Tax Lien to secure the government's interest against other creditors. Termination of an installment agreement may cause the filing of a Notice of Federal Tax Lien and/or an IRS levy action

releasing a lien

A lien releases automatically 10 years after a tax is assessed if the IRS has not filed it again or issued a Certificate of Release of Federal Tax Lien. The IRS will issue a Certificate of Release of the Federal tax lien within 30 days AFTER: - the date the IRS determines the entire tax liability listed in the notice of federal tax lien (including accrued interest and penalties and other additions) is fully satisfied or becomes legally unenforceable, OR - the date the IRS accepts the taxpayer's posted bond guaranteeing payment of credit

payment plans

agreement with the IRS to pay the taxes owed within an extended timeframe Options include: - short-term payment plan: paying in 120 days or less (180 under Taxpayer Relief Initiative) - long-term payment plan (installment agreement): paying monthly The taxpayer will be charged interest and late payment penalties on any tax not paid by its due date, even if a request for a payment plan is granted. Interest and any applicable penalties will be charged from the original due date until the balance is paid in full

collection due process (CDP)

available AFTER the taxpayer receives one of the following notice: lien, intent to levy, jeopardy levy and right of appeal, levy on state tax refund, post levy collection due process notice By law, taxpayers have the right to a CDP hearing upon receipt of a notice and a timely postmarked request for a hearing to the address indicated on the notice. Taxpayers are limited to one hearing under two tax notice sections for each tax assessment within a tax period A taxpayer can contest the CDP determination in the United States Tax Court

Collection Appeals Program (CAP)

available for the following actions: - before OR after the IRS files a notice of federal tax lien - before OR after the IRS levies or seizes property - termination, or proposed termination, of an installment agreement - rejection of an installment agreement - modification, or proposed modification, of an installment agreement Available under MORE circumstances than CDP. Unlike CDP, a taxpayer may NOT challenge the existence or amount of the tax liability. The taxpayer also CANNOT proceed to court if they do not agree with the Appeals' decision in a CAP case Collection actions taxpayers may appeal under this are: - notice of federal tax lien - notice of levy (appeal must be made within 9mos from the date of such levy) - seizure of property (before or after IRS makes a seizure but before property is sold) - rejection, modification, or termination of installment agreement - wrongful levy (must be filed in writing within 2 years of the levy or seizure and must satisfy certain requirements)

equitable relief

for properly stated but underpaid tax; if taxpayer does NOT qualify for other forms of relief, the taxpayer may still be relieved of responsibility for tax, interest, and penalties

innocent spouse relief

taxpayer may be relieved of responsibility for paying tax, interest, and penalties because a spouse or former spouse failed to report income, reported income incorrectly, or claimed improper deductions or credits Use Form 8857 to request relief if ALL of the following apply: - spouses have joint return with an understatement of tax directly related to one spouse's erroneous items - taxpayer seeking relief can establish that they didn't know about the understatement when filing the return - given the facts, it would be unfair to hold the taxpayer liable for the understatement of tax by the spouse

separation of liability relief

understated tax on the return is allocated between spouses or former spouses. The tax allocated is generally the amount the taxpayer is responsible to pay Available only for unpaid liabilities resulting from an underpayment of tax; refunds not allowed For those who are no longer married, widowed, or legally separated

extension period for undue hardships

Extension, if granted, will generally not be granted for longer than: - tax shown on the return: 6mos from the return due date, NOT including extensions - Deficiency determination: 18mos from date payment is due, additional 12mos for exceptional circumstances An extension will NOT be granted if the deficiency is due to negligence, intentional disregard of the rules and regulations, or fraud with intent to evade tax

reasons IRS may legally compromise a tax liability

- doubt as to liability: not sure if assessed tax is correct - doubt as to collectability: not sure taxpayer could ever pay full debt - promote effective tax administration: there is no doubt the tax is correct and no doubt the amount owed could be collected, but the taxpayer has an economic hardship or other special circumstances that may allow the IRS to accept less than the total balance due

filing Form 1127

A taxpayer MUST attach the following supporting documentation: - statements of assets and liabilities AND - itemized list of income and expenses for each of the three months prior to the due date of the tax Should be filed as soon as a taxpayer is aware of a tax liability or deficiency they cannot pay without causing undue hardship Extension of time to pay does NOT stop the accrual of interest

Application for Extension of Time for Payment of Tax Due to Undue Hardship (Form 1127)

A taxpayer can file this if they experience undue hardship that prevents them from paying, which the IRS defines as more than an inconvenience and requires the taxpayer to provide evidence that paying the tax on the due date would create a substantial financial loss (like selling a property at a substantial loss) The taxpayer MUST provide a detailed explanation of the undue hardship An extension will NOT be granted if only a general statement of hardship is provided A taxpayer can request an extension of time for tax shown or required to be shown on the return OR amount determined as a deficiency A taxpayer can file this form if they owe any of the following taxes, and paying the tax at the time it is due would cause an undue hardship: - income taxes - SE income taxes - withheld taxes on nonresident aliens and foreign corporations - taxes on private foundations and certain other tax-exempt organizations - taxes on qualified investment entities - taxes on greenmail - taxes on structured settlement factoring transactions - gift taxes A taxpayer can also file this form if they receive a notice and demand for payment or tax bill for any of the following taxes, and paying them at the time they are due will cause an undue hardship: - normal taxes and surtaxes - taxes on private foundations and other tax-exempt organizations - taxes on qualified investments - gift taxes

collection appeal rights

A taxpayer may appeal many IRS collection actions to the IRS Office of Appeals, which is separate from and independent of the IRS Collection office that initiated the collection action Two main procedures are the Collection Due Process (CDP) and Collection Appeals Program (CAP)

filing a wrongful levy claim

A taxpayer may be entitled to the return of the wrongfully levied property if they were not liable for the tax. For example, taxpayer may file an administrative wrongful levy claim for the return of wrongly levied property if the taxpayer is a non-liable spouse and the IRS levies a state income tax refund or a bank account belonging to the taxpayer or spouse

appealing a levy

A taxpayer may request a CDP hearing with the Office of Appeals by sending a request for a CDP hearing to the address shown on the notice. The taxpayer must file the request within 30 days of the date on the notice. At the conclusion of the CDP hearing, the IRS Office of Appeals will issue a determination. The taxpayer will have 30 days after the date of the determination to seek review of the termination in US Tax Court

low-income taxpayer that enters long-term payment plan

AGI is at or below 250% of applicable federal poverty level may qualify to pay the low-income reduced fee IRS will waive or may reimburse the user fee for low income taxpayers ONLY, for installment agreements entered into on or after April 10, 2018

levy notice

For each tax and period, the IRS is required to notify the taxpayer the first time it collects or intends to collect a tax liability by taking the taxpayer's property or rights to property; the IRS does this by issuing a pre-levy or post-levy notice The notice is mailed, given to the taxpayer, or left at his home or office During the 30-day period from the date of the notice, the taxpayer may request a hearing with Appeals. Four exceptions to issuing this notice before levy: - when the collection of the tax is in jeopardy - when the IRS levies a state tax refund - when the criteria for a Disqualified Employment Tax Levy is met - when the IRS serves a federal contractor levy The taxpayer may request a hearing after the levy action in these instances

IRS collection information statement

Form 433 A statement of a taxpayer's financial condition Includes an overview of income, expenses, assets, and liabilities The IRS uses the information to determine how a taxpayer can satisfy an outstanding tax liability This form is a requirement to prove economic hardship Taxpayer must file a collection information statement with an Offer in Compromise (OIC) request related to doubt as to collectability or to promote effective tax administration

releasing a levy

In general, the IRS MUST release a levy if the taxpayer pays the tax along with penalties and interest. In addition, the IRS must release the levy if: - the IRS did not follow proper procedures - an automatic stay during bankruptcy is in effect - the levy is on property that the IRS is not allowed to levy - the levy occurred after accepting (or while the IRS considers) an OIC or installment request, OR - the levy occurred while the IRS office of appeals considers certain appeals or requests for innocent spouse relief or during the review by the Tax Court (unless the court permits)

guaranteed installment agreements

IRS MUST accept proposals to pay in installments if taxpayers are individuals who: - owe income tax only of less than $10,000 (excluding penalties and interest) - during the past five years, taxpayer (and spouse) has timely filed all income tax returns and paid tax due and not entered into installment agreements - agree to fully pay the tax liability within 3 years or before the Collection Statute Expiration Date (CSED), whichever is earlier - agree to file and pay all tax returns during the term of the installment agreement and comply with the tax laws while the agreement is in effect AND - cannot pay the tax liability in full when due

offer in compromise (OIC)

IRS may accept THIS to settle unpaid tax accounts for less than the full amount of the balance due; this program is an option for those taxpayers who are unable to pay their tax accounts in a lump sum or through an installment agreement Use Form 656 OIC or Form 656-L Offer In Compromise (Doubt as to Liability) OIC requests made in 2021 MUST include a $205 application fee and initial payment unless taxpayer is an individual and meets the low-income certification guidelines Taxpayer must select a payment option and include the payment with the offer; the amount of the initial payment and subsequent payments will depend on the total amount of the offer and which of the following payment options the taxpayer selects: - lump sum cash: requires 20% of total offer amount to be paid with the offer and the remaining balance paid in 5 or fewer payments within 5 or fewer months of the date the offer is accepted - periodic payment: option requires the first payment to be paid within the offer and the remaining balance paid in monthly payments within 6 to 24 months, in accordance with the proposed offer terms; monthly payments must continue while the IRS is evaluating the offer A taxpayer that meets the low-income certification is not required to pay the application fee, send the initial payment, or make the required monthly payments while the offer is being considered

IRS selling seized (levied) property

IRS may sell the seized property. The following conditions apply: - the IRS must give notice of pending sale and wait at least 10 days - if the proceeds of the sale are less than the total of the tax bill and the expenses of levy and sale, the taxpayers will still have to pay the unpaid tax - if the proceeds of the sale are more than the total of the tax bill and the expenses of the levy and sale, the taxpayer may ask for a refund - if the IRS sells real estate, the taxpayer has the right to buy it back within 180 days of the sale for the amount paid plus 20% annual interest

payments by payroll deduction (Payroll Deduction Installment Agreement) (PDIA)

If a taxpayer chooses this, they will NOT be able to file Form 9465 electronically and MUST attach a completed and signed Form 2159 to their paper-filed Form 9465. The taxpayer's employer must also complete and sign the employer's portion of Form 2159, as payroll deduction agreement is subject to employer approval. User fee included

non-streamlined installment agreement

If taxpayer owes greater than $50,000 OR the taxpayer needs more than six years to pay, the taxpayer CANNOT file Form 9465 electronically and MUST complete Form 433. The taxpayer must attach Form 433 to their paper-filed Form 9465. This is known as THIS because the IRS requires a financial statement and substantial disclosure of financial information The maximum payment term is before the collection statute expires, usually up to 120 months

Notice of Tax Due and Demand for Payment

If the taxpayer has not paid all that they owe, the IRS will send a bill called THIS, and it will include the taxes plus interest and penalties The taxpayer may use a credit card, EFT, check, money order, or cash to pay

streamlined installment agreement

If the taxpayer's assessed balance is $50,000 or less, they may qualify for THIS Two tiers: balance due of less than $25,000 (taxpayer does not have to complete a financial statement) OR balance due from $25,001 to $50,000 (taxpayer must agree to make automatic monthly payments OR complete a financial statement as Form 433, and automatic payments must be Direct Debit Installment Agreement OR Payroll Deduction Installment Agreement) Balance due includes tax, assessed penalties, and interest (does not include accrued penalties and interest) Maximum term is 72 months, or before the expiration of the collection statute, whichever is earlier

Taxpayer Relief Initiative

Revised covid-related extension to help taxpayers more easily settle tax debts with the IRS Highlights: - 180 days to resolve tax liabilities for short term payment plans instead of normal 120 days - extend guidance to automatically include new tax year balances accrued in existing installment agreements (individuals and out of business entities only); IRS will automatically add certain new tax balances to existing installment agreements; this taxpayer-friendly approach will occur instead of defaulting the agreement - easing paperwork requirements to allow individuals more flexibility to get non-streamlined installment agreements up to $250,000 without financial verification if their case is not yet assigned to a revenue officer; certain qualified individual taxpayers who owe less than $250,000 may set up installment agreements WITHOUT providing a financial statement or substantiation IF their monthly payment proposal is sufficient - some individual taxpayers who only owe for the 2019 tax year AND who owe less than $250,000 may qualify to set up an installment agreement WITHOUT notice of federal tax lien filed by the IRS - the IRS will provide relief for taxpayers having difficulty meeting the terms of previously accepted offers The IRS has NOT stated when or if this relief will expire

passport revocation (collection appeal rights)

Seriously delinquent debt (legally enforceable tax debt including penalties and interest totaling more than $55,000 in 2021 and adjusted for inflation in which a notice of federal tax lien has been filed and all remedies under the law have lapsed or been exhausted, or a levy has been issued) can have the state department notified by the IRS about the taxpayer. Then, the department of state has the option to deny a passport application or revoke a current passport. The IRS will notify the taxpayer prior to sending the State Department a passport revocation referral letter. The State Department will notify the taxpayer in writing if it decides to revoke or deny a passport Revocation can be reversed by paying the full balance due or making an alternative payment arrangement Certain tax debt is excluded from the calculation of seriously delinquent, including: - penalties for the report of foreign bank and financial accounts (FBAR) - child support - tax debt covered by an IRS-approved installment agreement or offer in compromise - tax debt for which a DCP hearing has been timely requested regarding a levy - tax debt suspended while an innocent spouse relief request is considered The IRS will NOT certify the following taxpayers as having seriously delinquent debt: - taxpayers in bankruptcy - victims of tax-related identity theft - accounts in currently not collectible status due to hardship - taxpayers located in federally declared disaster areas - taxpayers with a pending request for an installment agreement or offer in compromise - taxpayers if the IRS accepted an adjustment to satisfy the debt in full The IRS will postpone certification of tax debt to the US Department of State for individuals serving in a designated combat zone or participating in contingency operations

short-term payment plan

Taxpayer should request THIS if they plan to pay the taxes, interest, and penalties due in full within 120 days (180 days) If they can afford to pay the full amount within 120 days, they can avoid paying the user fee to set up an installment agreement If the taxpayer owes less than $100,000 in combined tax, penalties, and interest, the taxpayer can apply for THIS only Payment method options include: - Direct Pay (checking or savings) - Electronic Federal Tax Payment System (EFTPS) - check, money order, debit/credit card (fees apply with card) Do NOT use Form 9465 if they can pay the full amount owed within 120 days

currently not collectible (CNC)

Taxpayer who needs more time to pay can request the IRS temporarily delay collection and report their account as THIS Being in THIS does not mean the debt doesn't go away; it just means the IRS has determined that the taxpayer can't pay the debt at this time, and the debt will increase because of penalties and interest until the full amount is paid

discharge of a specific property (lien)

The IRS has the discretion to issue a certificate of discharge of any part of the property subject to a Federal tax lien if the FMV of the property remaining subject to the lien is at least double the unsatisfied liability secured by the lien (including any liens that have priority over the federal tax lien)

lien notice

The IRS is required to notify a taxpayer the first time a Notice of Federal Tax Lien is filed for each tax and period The IRS Must notify the taxpayer within 5 business days AFTER the lien filing. This notice may be mailed, given to the taxpayer, or left at his home or office The taxpayer has 30 days after that 5-day period to request a hearing with Appeals The lien notice will indicate the date this 30-day period expires

prompting a CDP

The taxpayer must identify alternatives to, or reasons for disagreeing with, the lien filing or the levy action. Alternatives or reasons for disagreeing may include: - collection alternatives such as installment agreement or offer in compromise - subordination or discharge of lien - withdrawal of notice of federal tax lien - appropriate spousal defenses - the existence or amount of the tax, but only if the taxpayer did NOT receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability - collection of the tax liability is causing or will cause economic or other hardship Taxpayer is entitled to ONLY one hearing relating to a lien notice and one hearing relating to a levy notice for each taxable period To preserve the right to go to court, the taxpayer MUST request a CDP hearing no later than the 30th day after the date shown on the notice

lien

gives the IRS a legal claim to the taxpayer's property as security for payment of a tax debt; claim used as security for the tax debt A federal THIS arises when: - the IRS assesses the liability - the IRS sends a client a Notice and Demand for Payment, and - the taxpayer neglects or refuses to pay the debt within 10 days after notification. The IRS may file a Notice of Federal Tax Lien in the public records, which tells a taxpayer's creditors that the IRS has a claim against all of the taxpayer's property, including property acquired after the IRS filed the lien; the lien attaches to all property (such as homes and cars) and to all rights to property (such as accounts receivable for a business)

Internal Revenue Officer

highly skilled employee of the IRS Collection Division whose role is to collect delinquent unpaid taxes to secure tax returns that are overdue from taxpayers Can consider alternative means of resolving tax debt issues when the taxpayer cannot pay the full debt such as: - setting up payment agreements - granting relief when appropriate - suspending collection of accounts due to financial hardship

injured spouse relief

intended for spouses who will have all or part of their share of the refund applied against the separate past-due federal tax, state tax, child support, or federal non-tax debt (such as a student loan) of their spouse with whom a joint return was filed The injured spouse may be entitled to recoup their share of the refund by filing Form 8379

levies

legal seizure of a taxpayer's property to satisfy a tax debt Continuous until the tax debt is paid in full, other arrangements are made to satisfy the debt, or (in most instances) the time period (usually 10 years) for collecting the tax expires If the taxpayer does NOT pay taxes or arrange settlement: - the IRS can seize and sell property (such as a taxpayer's car, boat, or home) - the IRS can levy property that is the taxpayer's but held by someone else (such as wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of life insurance, or commissions) IRS usually levies ONLY when the following three conditions have occurred: - IRS assessed the tax and sent the taxpayer a Notice and Demand for Payment - taxpayer neglected or refused to pay the tax - the IRS sent the taxpayer a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice) at least 30 days before the levy

if taxpayer did not file a timely request for CDP hearing

may request an equivalent hearing if request is postmarked on or before the end of the one-year period after the date of the levy notice or on or before the end of the one-year period plus 5 business days after the filing date of the Notice of Federal Tax Lien

long-term payment plan (installment agreement)

most provide up to 72 months to pay the tax Generally requires equal monthly payments, and taxpayer must fully pay all of the tax owed within the time left in the 10-year period during which the IRS can collect the tax To request this, attach Form 9465 Installment Agreement Request to the front of the tax return or mail directly to the IRS if already filed Plan is NOT VALID UNLESS accepted by the IRS, but if the taxpayer owes less than $10,000 and meets other certain criteria, the IRS MUST accept the request (guaranteed installment agreement)