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IRS Collections Process

The IRS follows a procedure to collect back taxes. If you have unpaid taxes, you can avoid IRS collection actions such as a tax levy or garnishment, and prevent paying more in penalties and interest. Learning about the IRS collections process is an essential first step to protecting yourself.

Step 1:

If you owe back taxes, the IRS sends you a notice. The IRS calculates your tax liability based on your tax return and includes any penalties and interest that apply. If you did not file your return, the IRS files a Substitute for Return (SFR) to calculate your taxes.

Step 2:

If you do not respond to the first notice, the IRS sends your assessed balance, including penalties and interest.

Step 3:

If you decide not resolve the liability, the IRS will take collection actions. The IRS will take your future tax refunds to pay off a part of or the full tax debt, or can initiate a tax lien against you.

Step 4:

Some of the most aggressive IRS collection actions are wage and bank levies. Such collection methods can seriously destabilize a taxpayer’s finances.

To avoid IRS penalties, interest, and collection activity, taxpayers should take the following steps:

If you agree with the information on the bill, you may pay the full amount or request a payment plan. Before contacting the IRS, consider how much of your tax debt you can pay, and what method of payment is most convenient to you (lump sum or monthly payment).

Depending upon your ability to pay, you may choose an appropriate payment plan. Installment Agreements are popular amongst taxpayers. If you are unable to pay your full tax bill, you may use an IRS debt reduction program such as Offer in Compromise. Handling a tax issue early on is preferable over delayed resolution because of the accumulation of penalties and interest, and IRS collection actions.