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The Collection Process
If you don’t pay your tax in full when you file your tax return, you’ll receive a bill for the amount you owe. This bill starts the collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time or period for collection expires.
The IRS First Notice
It will include the amount of the tax, plus any penalties and interest accrued on your unpaid balance from the date the tax was due.
The unpaid balance is subject to interest that compounds daily and a monthly late payment penalty. It’s in your best interest to pay your tax liability in full as soon as you can to minimize the penalty and interest charges.
If you’re not able to pay your balance in full immediately, the IRS may be able to offer you a monthly installment agreement. In some cases, you can establish an installment agreement by using the Online Payment Agreement Application (OPA) or you may complete Form 9465.pdf, installment Agreement request, and mail it in with your bill.
You may also request an installment agreement over the phone by calling the phone number listed on your balance due notice. There’s a user fee to set up a monthly installment agreement.
Direct debit installment agreements offer a lower user fee that other installment agreements and help you to avoid defaulting on your agreement by allowing timely payments automatically.
To have the payment directly debited from your bank account, complete lines 13a. and 13b of Form 9465.
Interest and late payment penalties will continue to accrue while you make installment payments.
If you can’t pay in full, you should send in as much as you can with the notice and explore other payment arrangements.
If you can’t full pay under an installment agreement, you may propose a partial payment installment agreement or an offer in compromise (OIC).
An OIC is an agreement between a taxpayer and the IRS that resolves a taxpayer’s tax liability by payment of an agreed upon reduced amount.
Before an offer can be considered, you must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
Taxpayers in an open bankruptcy proceeding aren’t eligible. To confirm eligibility, you may use the Offer in Compromise Pre-Qualifier tool. If you need more time to pay, you may ask that we delay collection and report your account as currently not collectible.
If the IRS determines that you can’t pay any of your tax debt due to a financial hardship, the IRS may temporarily delay collection by reporting your account as currently not collectible until your financial condition improves.
Being currently not collectible doesn’t mean the debt goes away. It means the IRS has determined you can’t afford to pay the debt at this time.
Prior to approving your request to delay collection, we may ask you to complete a Collection Information Statement (Form 433-F.pdf, Form 433-A.pdf, or Form 433-B.pdf) and provide proof of your financial status (this may include information about your assets and your monthly income and expenses).
If we do delay collecting from you, your debt continues to accrue penalties and interest until the debt is paid in full. The IRS may temporarily suspend certain collection activities , such as issuing a levy (explained below), until your financial condition improves.
However, we may still file a Notice of Federal Tax Lien (explained below) while your account is suspended. Please call the phone number listed on your bill to discuss this option.
For additional information on currently not collectible, refer to Topic No. 202.
If you’re a member of the Armed Forces, you may be able to defer payment. See Publication 3, Armed Forces’ Tax Guide.
For example:
1. Filing a Notice of Federal Tax Lien
2. Serving a Notice of Levy, or
3. Offsetting a refund to which you’re entitled
A federal tax lien is a legal claim to your property, including property that you acquire after the lien arises.
The federal tax lien arises automatically when you fail to pay in full the taxes that have been assessed against you within ten days after the IRS sends the first notice of taxes owed and demand for payment.
The IRS may also file a Notice of Federal Tax Lien in the public records, which publicly notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the filing of the Notice of Federal Tax Lien.
The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating.
Once a lien arises, the IRS generally can’t release the lien until the tax, penalty, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
The IRS will withdraw a Notice of Federal Tax Lien if the notice was filed while a bankruptcy automatic stay was in effect.
The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines:
1. The Notice was not filed according to IRS procedures;
2. You enter into an installment agreement to satisfy the liability unless the installment agreement provides 0.otherwise;
3. Withdrawal will allow you to pay your taxes more quickly; or
4. Withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and in the best interest of the government.
The IRS may levy (seize) assets such as wages, bank accounts, social security benefits, and retirement income. The IRS also may seize your property (including your car, boat, or real estate) and sell the property to satisfy the tax debt.
In addition, any future federal tax refunds or state income tax refunds that you’re due may be seized and applied to your federal tax liability. See Topic No. 203 for refund offsets.
