What can the IRS do to collect back taxes?
The Internal Revenue Service (IRS) is the United States government agency responsible for tax collection and enforcement. When individuals or businesses fail to pay their taxes on time, the IRS has a variety of methods to ensure that back taxes are collected. Understanding these methods can help taxpayers take proactive steps to resolve any tax debt issues they may have.
1. Sending a Notice of Tax Due
The first step the IRS takes when a taxpayer owes back taxes is to send a Notice of Tax Due. This notice outlines the amount owed, the period for which the tax is due, and the deadline for payment. If the taxpayer does not respond or pay the amount due within the specified time frame, the IRS will proceed to the next step.
2. Filing a Tax Lien
If the taxpayer fails to pay the back taxes after receiving a Notice of Tax Due, the IRS may file a tax lien. A tax lien is a legal claim against the taxpayer’s property, including real estate, vehicles, and bank accounts. This action makes it difficult for the taxpayer to sell or borrow against their assets until the tax debt is resolved.
3. Levying Property
Once a tax lien is in place, the IRS can levy the taxpayer’s property to collect the back taxes. This means that the IRS can seize and sell the taxpayer’s assets to satisfy the debt. Property subject to levy includes wages, bank accounts, and even retirement accounts. It is important to note that the IRS cannot seize property that is exempt under state or federal law, such as a primary residence or personal belongings.
4. Garnishing Wages
Another method the IRS uses to collect back taxes is wage garnishment. This involves taking a portion of the taxpayer’s wages and sending it directly to the IRS to pay off the debt. The amount garnished can be up to 25% of the taxpayer’s disposable income, and the garnishment can continue until the debt is paid in full.
5. Initiating an Installment Agreement
If the taxpayer is unable to pay the back taxes in full, the IRS may offer an installment agreement. This allows the taxpayer to pay the debt in smaller, more manageable monthly payments. To qualify for an installment agreement, the taxpayer must demonstrate that they cannot pay the debt in full within the collection period and have a good payment history.
6. Filing a Tax Levy
In cases where the taxpayer has not paid their back taxes and has not entered into an installment agreement, the IRS may file a tax levy. This is a more severe measure that can result in the immediate seizure of the taxpayer’s assets and the sale of those assets to satisfy the debt.
7. Enforcing the Tax Debt Through Legal Action
If the IRS is unable to collect the back taxes through other means, it may take legal action against the taxpayer. This can include filing a lawsuit to obtain a judgment against the taxpayer, which can then be enforced through wage garnishment, levy, or seizure of assets.
In conclusion, the IRS has several methods to collect back taxes, ranging from sending notices and liens to wage garnishment and legal action. It is crucial for taxpayers to address any tax debt issues promptly to avoid these consequences. Seeking professional tax advice and working with the IRS to resolve the debt can help taxpayers avoid the worst-case scenarios and maintain their financial stability.
