IRS Tax Debt Resolution and Collection Actions

Last updated on December 12, 2022

Being in tax debt is distressing because the Internal Revenue Service can use collection actions to force taxpayers to pay back taxes. Wage garnishments, liens on property, levies on assets are some of the IRS’ aggressive collection actions that are best avoided. A case of IRS tax debt becomes more complicated through delays and inaction. When in tax debt, it pays to remember a few facts that can ease your way to a smoother, faster and beneficial resolution.

Saving IRS Tax Debt Penalties and Interest

Taxpayers must remember that the IRS charges penalties and interest on tax debt. The purpose of these penalties and interest is to encourage taxpayers pay the tax debt amount as early as possible in order to avoid paying a significantly higher amount because of the accumulation of penalties and interest. It is also to discourage tax non-compliance because if the IRS did not keep adding penalties and interest, there would be no benefit to resolving a tax debt early.

Many taxpayers believe that qualifying for a tax debt resolution plan protects them from penalties and interest. It is important to note that the IRS continues to charge both penalties and interest on tax debt that remains to be paid until it is paid in full. This condition remains even when a taxpayer has qualified for a payment plan such as Installment Agreement and has begun making payments.

The way to minimize penalties is to either seek abatement of penalty (where removal of the entire penalty can be achieved) or pay the full tax debt in a single payment to avoid accumulation of penalties and interest in the future.

IRS Tax Debt Resolution Methods

Even though full payment of tax debt is the easiest method to pay back taxes, most taxpayers cannot afford to pay a lump sum amount. They should explore IRS debt payment plans such as an Installment Agreement, Offer in Compromise and Currently Not Collectible. Bankruptcy is another option that can be explored only if specific eligibility requirements can be fulfilled.

When choosing a debt payment plan, ensure that you can comply with the eligibility requirements in the present and in the future. For example, if you fulfill the eligibility requirements of Guaranteed Installment Agreement, you must be sure that you can pay the entire tax debt amount in 36 months or less. If your financial condition does not allow full payment of the tax debt within three years, you should explore tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement.

Avoiding IRS Tax Debt Collection Actions

Taxpayers should seek to avoid collection actions by the IRS by resolving their tax debt as quickly as possible. Collection actions such as liens and levy complicate a tax case, make taxpayers’ financial situation unstable and affects their ability to take credit in future. When the IRS begins to send notices regarding payment of tax debt, resolution of the tax debt must become a priority. Delays will only complicate problems, not reduce them. The best way to resolve tax debt is to resolve it as quickly as possible.