Why is it important to avoid IRS Collection?

By Eric Wong, EA

When you file your federal tax return reporting a tax due, you are self assessing the tax that creates a tax liability on your IRS tax account for that tax year. That becomes the date of assessment and starts the 10 year statutory period for the IRS to collect the tax from you for that tax year.

You are required to full pay the reported tax by the return filing date generally April 15, not including a 6 month filing extension. The October 15 filing extension simply gives you more time to prepare and file the tax return. Don’t make the common mistake of thinking the extension also gives you more time to pay the tax owed. To reduce the tax payment, especially a large amount, you should have paid estimated taxes prior to filing the return. If you do not timely pay the tax owed, you will be assessed a late payment penalty up to the maximum allowed by law.

The unpaid balance is also subject to interest that compounds daily. Its best to pay the tax as soon as possible to minimize the penalty and interest charges from accruing.

You will generally receive two billing notices for the tax due. Do not ignore the notices! The IRS will not just go away.

If you cant pay in full, you should consider getting a bank loan or cash advance against your credit card. The rate and fees charged by your credit card company or bank may be lower than the penalties and interest imposed by law. If you can’t full pay, you should pay whatever you can and explore payment arrangements with IRS such as an installment agreement (IA) and offer-in-compromise (OIC).

If you fail to respond to the billing notices or make voluntarily payment arrangements, the IRS will begin the collection process against you.

Collection actions can range from applying your subsequent tax year refunds to the tax due (until paid in full) to seizing your property and assets. Moreover, the federal tax lien arises automatically if you don’t pay the tax. A federal tax lien is a legal claim against all your current and future property, such as a house or car, and rights to property, such as wages and bank accounts.

In the past, there were unannounced visits from an IRS Revenue Officer (RO) to your home or business as part of their efforts to collect back taxes owed by taxpayers. On July 24, 2023, the IRS announced that most unannounced RO visits to taxpayers would stop to reduce public confusion and enhance overall safety measures for both taxpayers and IRS employees. Instead, the RO will now send a Letter 725-B, Meeting with Taxpayer – Confirmation, to schedule a meeting. If you receive this letter, you will be able to schedule a face-to-face meeting at a set place and time to resolve your case more quickly and hopefully eliminate the need for multiple meetings with the RO.

Revenue officers are IRS civil enforcement employees who work cases that involve tax debts owed by a taxpayer or delinquent tax returns. Their role involves investigation, and if necessary, appropriate enforcement action against you. With a massive $80 billion budget infusion in 2022, the IRS has renewed its focus on collection and now has a greater ability to take collection action(s) against you.

The big take away here is that you should not let things get to this point in the first place and then have to deal with an RO. To be sure, there will be more RO’s in force for the IRS. It certainly behooves you to avoid IRS collection by taking a proactive approach to your tax debt before the collection process begins.

If you have a tax issue, please contact the undersigned Eric Wong, EA for a complimentary 30 minute consultation.