When IRS Debt Leads to Collection Actions

Last updated on April 10, 2023

Unpaid taxes, if they stay unresolved, not only lead to collection actions, but also increase the total tax debt amount to be paid. Many taxpayers do not know if they owe taxes or not, especially if their income is low. To calculate your taxes, you can use free tax preparation assistance from the IRS or hire a tax preparer. If you are already under an IRS debt, it is best to arrange payment or resolve the case as soon as possible.

IRS Tax Debt: Federal Tax Lien

It is important to respond to IRS notices when you get them, especially the final one the IRS sends before placing a federal tax lien. This notice is CP 90 or CP 297 Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing. After sending this final notice, the IRS stops sending notices.

Before the final notice to levy, the IRS sends multiple notices regarding the payment of tax debt.  These notices contain information on the amount to pay, how to contact the IRS and what led to the tax debt. After receiving initial notices, taxpayers must begin to look for ways to resolve the case.

IRS Tax Debt: Tax Levy

The IRS has the legal authority to seize the assets in a taxpayer’s financial accounts in order to satisfy tax debt. The IRS can also levy a taxpayer’s wages, known as a wage garnishment.

The IRS still uses a levy even if it only partly satisfies a tax debt. Usually, the IRS will seek to collect the maximum amount of tax debt they can. To stop a levy, the taxpayer must immediately prepare their case and contact the IRS. In such complicated tax debt cases, the help of a tax expert becomes necessary.

IRS Tax Debt: Public Document

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to a taxpayer’s property. This document is also provided to creditors so that they are aware of the tax lien.

A tax lien can be attached to the following:

• Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
• Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
• Business — The lien may attach to all business property and to all rights to business property, including accounts receivable.
• Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

It is crucial to begin resolution efforts to resolve the tax debt cases as soon as possible. It is in the best interests of taxpayers to resolve their tax debt early so that they do not have to pay the added monthly penalties and interest on the IRS debt.