IRS Collection Process
1. Collections (5.1)
-
Assessment: IRS sends notice demanding payment within 10 days.
-
Statute of Limitations: 10 years to collect (can be extended/suspended).
-
Installment Agreements:
-
Regular: File all returns, pay current taxes, fee applies.
-
Guaranteed: ≤$10K debt, clean 5-year history, pay within 3 years.
-
-
Extension of Time to Pay: File Form 1127 for undue hardship (interest still accrues) 6 Months Extension Oct 15th.
2. Offer in Compromise (OIC) (5.2)
-
Settle for less if:
-
Doubt exists on collectibility. (form 656 with 433A/B/F)
-
Payment causes economic hardship. (form 656 with 433A/B/F)
-
Payment Options:
-
Lump Sum: 20% down + balance in ≤5 months.
-
Periodic: Payments over ≤24 months.
-
-
Requirements: Must be current on filings/payments; no open bankruptcy.
3. Liens & Levies (5.3)
Lien = The IRS putting a "flag" on your property saying, "We have a right to this if you don’t pay."
Levy = The IRS taking the property with the "flag" and selling it for cash.
-
Lien: IRS claim on all property (current + future) after:
-
Assessment → Notice → 10-day non-payment.
-
-
Levy: Seizure of assets (exemptions: clothing, tools, primary home).
-
Jeopardy Levy: Immediate seizure if IRS believes collection is at risk.
-
-
Bankruptcy Discharge Rules:
-
Taxes must be ≥3 years old, filed ≥2 years ago, assessed ≥240 days ago, no fraud.
-
4. Trust Fund Recovery Penalty (5.4)
-
Applies to withheld payroll taxes (income tax + FICA).
-
100% penalty on responsible persons (officers, directors) who willfully fail to pay.
-
Not dischargeable in bankruptcy.
5. Appeals & Relief
-
Collection Appeals Program (CAP): Contest liens/levies with Form 9423..
-
Problem Resolution Office under the control of Taxpayer Advocate Service (TAS): Helps if IRS actions cause economic harm (use Form 911).
Key Forms
-
Form 433-A/B/F: Financial statements for payment plans/OIC.
-
Form 656, 656L: OIC application.
-
Form 12153: Appeal a lien/levy.