An introduction to IRS tax collection

Federal tax authorities have extremely broad collection powers to satisfy tax debt.

During times of financial trouble, creditors can be relentless. One creditor that should not be ignored, however, is the IRS. When a taxpayer owes federal taxes - because he or she could not pay on time, or the IRS asserted a mistake on a return or calculated taxes due when a return was not filed - the IRS has sweeping collection powers to satisfy the tax debt.

The first step the agency takes is to place a tax lien on the taxpayer's property. A lien is a legal interest in a debtor's assets that may allow the lien holder to take control of property in order to satisfy the debt. When the IRS issues a public lien notice, it can adversely impact the taxpayer's credit.

An IRS lien is extremely broad, reaching property owned by the debtor, money or other assets that he or she acquires in the future, and assets of the debtor held by certain third parties. For example, if a third party owes the taxpayer a debt, that debt may be subject to the lien, so the IRS may be able to collect that debt from the third party to apply toward the tax debt.

To collect a federal tax debt - including added penalties and interest - the IRS may be able to levy upon and seize the taxpayer's money, real estate, retirement or Social Security payments, and personal property; garnish wages; and keep federal or state tax refunds from being returned to the taxpayer.

For these reasons, it is imperative that such a taxpayer consult with an attorney with tax law experience as early as possible, even when the IRS first asserts that taxes are due and even before a lien is placed or the agency tries to levy against property. There are steps that a taxpayer may be able to take to protect his or her assets from collection, both early on and at later stages of the collection process, so seeking legal counsel at any stage can be crucial.

After reviewing all the records and correspondence and assessing legal options, depending on the circumstances, a taxpayer's lawyer may be able to assist the taxpayer with:

  • Requesting reconsideration of an audit
  • Negotiating an installment plan
  • Negotiating an offer in compromise or OIC, an agreement in which the IRS agrees to accept less than the amount due in exchange for immediate payment of part of the tax debt
  • Filing bankruptcy that may result in some or all of the tax debt being cancelled in some situations
  • Requesting a finding of "currently not collectible" or CNC because of taxpayer financial problems, which delays collection
  • Appealing the collection action within the IRS administrative review process at a collection due process or CDP hearing, subject to U.S. Tax Court review if unfavorable
  • Using the collection appeals program or CAP entirely within the IRS
  • Filing a request for innocent spouse relief if the tax debt is due to improper underpayment of taxes on a joint return by the other spouse that the taxpayer spouse did not know about
  • Applying for an extension based on undue hardship
  • Requesting a discharge of tax lien from certain property to allow it to be sold to pay the tax debt
  • Asking for subordination of the tax lien to lower priority liens to help the taxpayer obtain other financing
  • Or other potential solutions

The attorneys at Insight Law with offices in Seattle, Burien and Bellevue, Washington, represent taxpayers in the region facing collection or other tax-related matters with the IRS or state of Washington.