IRS Collection Methods for Collecting Tax Debt

Last updated on October 11, 2021

Tax debt is the most common tax problem faced by American taxpayers. Non-payment of taxes is the only way through which taxpayers can get into tax debt, but there are various ways to get out of it. Taxpayers who fail to pay taxes owed to the IRS may receive IRS notices for the collection of tax money owed.

Tax Debt Recovery: Tax Lien

When taxpayers do not respond to IRS notices regarding collection of back taxes, the IRS may place tax lien. Under a federal tax lien, the IRS has the legal right to claim a taxpayer’s property to secure payment of tax debt. The IRS may also claim a taxpayer’s financial assets and personal property to secure payment of back taxes.

The IRS first sends notices to remind and inform taxpayers of the amount of tax debt and how to pay it. Only after taxpayers neglect or refuse to pay the back taxes amount or choose an IRS debt payment program for payment of tax debt that the IRS places a tax lien to secure payment of back taxes. Therefore, taxpayers must immediately make an effort to pay back taxes. They may take outside help or pay taxes owed to the IRS in a single payment, which does not require negotiation.

Tax Debt Recovery: Tax Levy

Another aggressive collection action of the IRS is tax levy. Under a federal tax levy, the IRS seizes and may sell the property of a taxpayer to satisfy the tax debt. The difference between tax levy and tax lien is that under tax levy the IRS seizes and takes over the ownership rights of a property and may sell it to fulfill the debt whereas under tax lien, the IRS only secures the property to guarantee payment of back taxes.

It is in the best interest of taxpayers to take immediate steps to stop or resolve tax lien or tax levy before the IRS sells their property to fulfill back taxes. In such complicated tax cases, it is best to take help of tax lawyers.

Under tax levy, the IRS has the legal right to seize and sell any property held by the taxpayer such as house, boat, car, and also property that is the taxpayer’s but is held by someone else such as wages, bank account(s), rental income, dividends etc.

To avoid IRS collection actions such as lien or levy, taxpayers may begin to pay their tax debt after they receive IRS notices concerning back taxes. The IRS has four major tax debt payment programs namely Currently Not Collectible, Offer in Compromise, Installment Agreement and Partial Payment Installment Agreement. Taxpayers may choose a debt payment program depending on their financial condition.

It is recommended that taxpayers choose a competent tax help to resolve tax debt issues such as payment of tax debt, tax lien and tax levy. A resolution that is in the favor of taxpayers requires much negotiation with the IRS. A taxpayer may take the help of tax resolution companies that have competent tax lawyers working with them. For making an informed choice, they may look at our ratings and reviews of various tax help.