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Like most creditors, the IRS will act on its right to collect taxes that you owe. In the beginning, its collection process is similar to what you may have encountered with an overdue credit card or utility bill: you get a Notice and Demand for Payment (also known as a CP501 notice) in the mail explaining what you owe and requesting payment in full. With an overdue tax bill, this amount will include the amount of outstanding tax plus any interest and penalties.
If you don’t respond, you will receive three more notices, each one escalating in urgency:
- CP502: This letter takes a more serious tone than the CP501 notice and includes a demand for immediate payment.
- CP503: Payment is requested within 10 days of the date on the notice.
- CP504: The IRS will mention an intent to levy. If you don’t respond, the next step may be a Notice of Federal Tax Lien.
If you don’t pay, the similarity between the IRS and creditors like Visa and MasterCard quickly disappears. Unlike a credit card company, the government doesn’t have to obtain a court judgment against you in order to enforce its rights. It can escalate the collection process by filing a Notice of Federal Tax Lien.
Filing a Notice of Federal Tax Lien
When payment demands fail, the next step is usually to file a federal tax lien, which is a government claim made against your personal property. Unlike tax levies, liens are a confirmation of the government’s right to seize your property. You haven’t lost control of your assets yet, but if you don’t resolve the matter with the IRS, that may be the next step.
Serving a Notice of Intent to Levy
A tax levy is the legal seizure of your property to satisfy an outstanding tax obligation. If you fail or refuse to pay after receiving the appropriate notices, the IRS will send you a document called a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days prior to the levy taking effect. Once it does, the government can collect its money by seizing property, garnishing your wages, withholding tax refunds, or imposing a bank levy.
What If You Can’t Pay What the IRS is Demanding?
If you can’t pay your tax balance in full, you may be able to negotiate a payment plan with affordable monthly installments. If you don’t qualify for an installment agreement, another option is an offer in compromise in which the IRS agrees to accept less than full payment, but this arrangement is notoriously difficult to qualify for, and you’ll need an attorney’s help to make a proposal the IRS is likely to accept.
Other options include:
- Taking out a bank loan or borrowing money from friends and family
- Making voluntary payments to more recent years first
- Obtaining “Currently Not Collectible” status with the IRS
- Filing for bankruptcy
Speak With a Miami Tax Attorney Today
Tax debts are a major source of personal and financial stress because they grow steadily with accrued interest and penalties. At Weisberg Kainen Mark, PL, we have a solid track record in navigating clients through one of the most stressful experiences there is – IRS collection proceedings. We can help if you have been penalized as a result of an IRS audit, or if you wish to negotiate with the IRS to settle a tax problem on your terms. To schedule a consultation, please call 305-374-5544 or complete our online form.
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