Introduction: The IRS Collections Process | Brotman Law (2024)

The IRS uses the carrot and stick to get people into compliance and to get liabilities resolved. Generally, they use the stick more than the carrot.

What happens is the more time that passes from when the IRS is aware that you owe a liability, the more significant and strong the actions they take against you are.

Again, they want you in compliance. They want you to pay your taxes, they want you to get on a payment plan if you cannot afford to pay your taxes in full, and they are not going to tolerate you owing money to the government.

IRS actions can come in the form of straight-forward letters of notification to the extreme of sending special agents to your home of business.

As time passes, the IRS will take increasingly serious action against you. They start with letters.

You start getting letters — correspondence of increasing urgency. The IRS generally goes after low-hanging fruit. They start seizing bank accounts and wages and they can take a portion of your Social Security.

They are also looking for assets that they can quickly find and liquidate in order to satisfy the liability.

If they cannot locate those assets, and depending on how much liability you owe, then they may take stronger action against you.

They may send a field agent to your house. They may summon you and bring you in for an interview. They may demand the production of financial information or other documents that they may review to get their money back.

What happens is the longer that IRS liabilities go unresolved, the more serious the government is and the harder and faster they move against you.

From a planning perspective, It is really important that as soon as you become aware of an IRS liability, or as soon as you are in a position to take care of a tax problem, that you do so as quickly as possible.

Taking swift and prompt action will mitigate most IRS problems very quickly.

What is the strategy for dealing with IRS collection cases? Our firm’s strategy is to throw the IRS completely out the window and just start with the client. We take a client’s situation — and every situation is different — but we always focus on what the end goal is.

You may owe the IRS a sum of money and you may not be able to pay that sum of money but the really important thing is not that you pay the money, but that your life moves forward and that you are able to meet your personal, professional and financial goals.

We start with an understanding of what the goal is and then we work the solution into that.

That solution can look like a lot of things. It can look like a payment plan, it can look like a hardship, it can look like a tax settlement, but the long or the short of it is, let us work on hitting the goal based on whatyouwant, not based on what the government wants.

The way that we approach IRS collection issues and the strategy behind that is to start by looking in a situation, figuring out where we want to be, figuring out the fastest way to get there and then navigating the government through that hurdle.

OPTIONS IF YOU CANNOT PAY THE IRS

Number one, the keyword isoptions. You have lots of options. The options that we recommend are ones that get you into compliance.

You can, number one, pay the liability in full. If you do not have enough money to pay the liability in full, you can ask them for an extension of say, four or five months before the IRS is going to request your payment in full.

If you still cannot pay the liability, then you should enter into a payment plan or propose a settlement. A payment plan is exactly what it sounds like, you make a series of payments to the IRS over time.

A settlement is what is more commonly known as anoffer in compromise, where if you have a liability and you know that you will never ever be able to pay it, you could offer the IRS a reduced amount. In exchange for that amount, they will forgive your liability.

If, for whatever reason those do not work for you, you can enter into a hardship which is currently callednon-collectible status.

You have to document evidence of your hardship and provide the IRS with financial information and then they will put a reprieve on you from collecting the liability either in the short-term or in the long-term.

Generally, non-collectable status can last anywhere from six months to about two years.

The last option that you have isbankruptcy, but bankruptcy is something that I consider generally to be a nuclear option because bankruptcy has a lot of impact on you outside of your tax situation.

If the only thing you owe is tax debt, or maybe some small consumer debts and credit cards, generally working through the administrative process is much more favorable to bankruptcy.

That is the lay of the land, you can pay it, you can request more time to pay it, you can put yourself on a payment plan, you can settle the liability, you can ask for a hardship, or you can go into bankruptcy. Those are your six options for dealing with liabilities that you cannot afford to pay.

That is why we created this free book, “The Tax Attorney’s Complete Guide to IRS Collections.” Our firm has represented many, many small business clients in IRS collections cases.

Although it is a daunting process, thereis light at the end of the tunnel. Come in for a consultation and we will review your situation and together, we will figure out a strategy to pay off your debt to the IRS. We have an experienced team of attorneys with a solid record of satisfied clients, so you know you will be in good hands.