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Coming for Your Money: What the IRS Can (and Can’t) Do to Collect a Tax Debt

As you will see, the IRS has a lot of power to collect a federal tax debt. As far-reaching and mighty as those powers may seem, they are not unlimited.

What the IRS Can’t Do

The IRS Can’t Put You in Jail for Owing Tax

 You may have an outstanding tax debt, but you won’t go to jail for it. You could be prosecuted for falsifying tax returns or trying to evade taxes. However, if you file a return (on time, even if it’s the extended deadline) and you simply can’t pay? You cannot be hauled off to jail for that.

The IRS Can’t Take Collection Action Against You without Due Process

You will be notified of any delinquent taxes and given the opportunity to refute or appeal any decision. The IRS is not going to show up at your door unless you’ve already agreed to meet them there. The first contact from the IRS is usually by mail.

The IRS Can’t Seize Your Property if…

 If you have submitted an installment agreement (or have an approved agreement) to pay what you owe, the IRS won’t seize your property. Likewise, your property is safe while the IRS considers your Offer in Compromise. Also, if the IRS deems you unable to pay because of your financial situation, they will not seize your property.  In this case, the IRS determines that you would be unable to meet basic living expenses if they move forward with collection activity.

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What the IRS Can Do

Issue a Summons for Financial Information

 Are you unwilling or unable to provide the paperwork the IRS is looking for? No problem – they can issue a summons and the court will likely uphold it. The IRS already has third-party information on you from your employers, your bank, and anyone who has paid you dividends or other income. If IRS needs more information, rest assured, they will get it.

File a Tax Lien Against your Social Security Number

A tax lien shows up on every credit report, each time you apply for credit.

It affects your credit score and your ability to buy a home or car. If you are job hunting, it will show up if your employer does a credit check on you, possibly preventing you from getting the job.

Garnish your Wages

The IRS can have your employer withhold money from your paycheck. How much money? It depends on how much your make, the number of exceptions you claim, and your filing status. The IRS figures how much you need to live on and takes the rest. For example, a single filer with one dependent gets $1,345.83 a month for all living expenses. The rest of the paycheck goes toward paying off back tax debt.

Levy your Bank Accounts

The IRS can take money directly out of your bank accounts to pay your tax debt. This includes retirement accounts as well as the cash loan value of your life insurance, rental income, and dividends from stocks.

Seize your Home, Vehicle, or Boat

 The IRS can seize any property you own and sell it to satisfy your tax debt. After tax is assessed and a Notice and Demand for Payment is sent and ignored, another Final Notice of Intent to Levy and Notice of Your Right to A Hearing is sent at least 30 days before the levy is assessed.

 Revoke your passport

 Plan on traveling outside the U.S.? You may want to think twice if you are seriously delinquent on $50,000 or more of back taxes. Your passport may be subject to limitations or even revoked by the IRS.

Have a Private Collection Agency Try to Collect from You

 Current law allows the IRS to outsource collection of your tax debt to a private collection agency. These are the four agencies that the IRS is currently working with:

  1. CBE

P.O. Box 2217

Waterloo, IA 50704

(800) 910-5837

  1. ConServe

P.O. Box 307

Fairport, NY 14450-0307

(844) 853-4875

  1. Performant

P.O. Box 9045

Pleasanton, CA 94566-9045

  1. Pioneer

P.O. Box 500

Horseheads, NY 14845

(800) 448-3531

The IRS gives notice through mail if it is turning your tax debt over to a private collection agency. Then, another notice will come from the collection agency itself. If this has happened to you – and you do not want to be contacted by the private collection agency – you can submit a written request to the agency. (Addresses provided for your convenience).

Given the broad collection powers of the IRS, it’s wise to deal with any tax issues right away. Even if a lien or levy has already in place, there are ways to improve your situation. You need the help of an Enrolled Agent, one of America’s Tax Experts, to help guide you through this process.

Call us today to set up a free consultation at (772) 337-1040.

Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting Services as well as the Enrolled Agent and Certified Tax Resolution Specialist for SFS Tax Problem Solutions.
Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on
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Phone: 772-337-1040