Owing money to the IRS can be stressful, especially when you begin receiving collection notices or are concerned about potential enforcement actions. But having IRS tax debt does not necessarily mean you have to pay the entire balance immediately or face collection action without options.
Understanding how the IRS collection process works—and acting before the situation becomes more serious—can make a significant difference.
What Happens When You Owe the IRS?
When you have an unpaid federal tax balance, the IRS generally begins the collection process by sending notices explaining how much you owe and requesting payment. Interest and penalties can continue to accrue on unpaid balances.
If you cannot pay the entire balance, the most important thing you can do is not ignore the IRS.
Depending on your circumstances, you may have several options for resolving your tax debt.
Can the IRS Take Your Assets?
Yes. If a taxpayer does not pay or establish an appropriate resolution, the IRS has collection tools available to recover unpaid taxes.
In certain circumstances, the IRS may:
- File a Notice of Federal Tax Lien
- Levy bank accounts
- Garnish wages
- Levy certain retirement or Social Security income
- Seize and sell certain property
- Apply future federal or state tax refunds toward the tax debt
The IRS generally provides notices and opportunities to resolve the balance before taking certain enforced collection actions.
That’s why responding to IRS correspondence promptly is so important.
What If You Can’t Afford to Pay?
Not everyone who owes the IRS can afford to pay their balance in full. Fortunately, the IRS recognizes several payment and collection alternatives.
Installment Agreements
An installment agreement may allow you to make monthly payments rather than paying the entire balance at once.
Depending on the amount owed and your circumstances, you may qualify for different types of payment arrangements, including long-term or partial-payment agreements. Interest and applicable penalties generally continue to accrue while payments are being made.
Offer in Compromise
An Offer in Compromise (OIC) may allow an eligible taxpayer to settle their federal tax debt for less than the full amount owed.
The IRS considers factors such as:
- Income
- Expenses
- Assets and equity
- Ability to pay
- Overall financial circumstances
An Offer in Compromise is not appropriate for everyone, and simply owing a large amount does not automatically mean a taxpayer qualifies. The IRS generally evaluates whether the proposed settlement represents what it reasonably expects to collect.
Currently Not Collectible
In some situations, a taxpayer may be experiencing enough financial hardship that paying the IRS would prevent them from meeting necessary living expenses.
When appropriate, the IRS may temporarily delay collection. However, the underlying tax debt does not simply disappear, and interest and penalties may continue to accrue.
Penalty Relief
Some taxpayers may also qualify for relief from certain IRS penalties. Whether penalty relief is available depends on the circumstances and the specific penalties involved.
A careful review of the taxpayer’s history and IRS account can help determine whether requesting penalty relief may be appropriate.
IRS Enforcement Is Why Early Action Matters
The longer an unresolved tax debt remains unaddressed, the more complicated the situation can become.
Ignoring IRS notices can result in continued collection activity, additional penalties and interest, and potentially more serious enforcement actions. The IRS specifically advises taxpayers who cannot pay in full to explore payment arrangements and other collection options.
The goal isn’t simply to stop an IRS notice. The goal is to find a tax resolution strategy that fits your financial situation.
What Should You Do If You Owe the IRS?
If you have received an IRS notice or know you have an outstanding tax balance, consider taking these steps:
- Don’t ignore the notice.
- Confirm the balance and tax periods involved.
- Make sure all required tax returns have been filed.
- Review your income, expenses, assets, and liabilities.
- Determine which IRS resolution options you may qualify for.
- Respond before the IRS takes enforced collection action.
For taxpayers facing significant tax debt, determining the right resolution strategy can be complicated. An option that works for one taxpayer may be completely inappropriate for another.
You Don’t Have to Face the IRS Alone
If you’re dealing with IRS tax debt, you don’t have to navigate the collection process by yourself.
Flores Tax Relief helps individuals and business owners understand their IRS tax debt and evaluate potential resolution strategies, including installment agreements, Offers in Compromise, penalty relief, and other IRS collection alternatives.
If you’re worried about an IRS notice, wage levy, bank levy, tax lien, or a growing tax balance, don’t wait until the IRS takes the next step.
Contact Flores Tax Relief to discuss your situation and learn what options may be available to help resolve your IRS tax debt.
Tax laws and IRS procedures can change. This article is intended for general educational purposes and does not constitute individualized tax, legal, or financial advice.