Understanding IRS Collections: It's Not That Scary With Help

October 22, 2020 by Carolyn Richardson, EA, MBA and Jean Lee Scherkey, EA
Man holding sign saying HELP!

When a taxpayer receives a collection notice from the Internal Revenue Service, their typical first reaction is one of panic. Can the IRS come and seize my house or car? Take all my salary or Social Security benefits away? Put me in jail? Much of the information taxpayers know or think they know comes from friends, the media, and even the IRS. But is every collection notice that a taxpayer receives really of the “pay up or else” nature? While a healthy respect for the IRS’s collection procedures is probably not a bad thing, most of what our clients hear is more myth than reality. More often than not the goal of the IRS is to assist taxpayers in becoming compliant, whether this means reinstating a defaulted installment agreement, or, in certain circumstances, giving a taxpayer additional time to pay the tax due. And of course, TaxAudit helps our clients through the process.
 

Taxpayers Have Constitutional Due Process Rights

 

The realities of “being in collections” are far more mundane than our urban legends and political cartoons profess. Taxpayers have various constitutional due process rights when it comes to collections, and the IRS will generally do whatever it can to avoid having to seize property or resort to more draconian collection procedures, giving taxpayers ample opportunity to either pay their balance due, set up installment agreements, or otherwise make arrangements to settle their debt. Even when the IRS does resort to property or asset seizures, what they can seize is governed by the Internal Revenue Code, and not all assets are fair game. Generally, by the time assets are seized, the IRS has attempted to contact or negotiate some sort of payment arrangement with the taxpayer for months - if not years - beforehand.
 

Millions of Taxpayers Owe Money to the IRS

 

During the last decade there have been intense fluctuations in the global and national economies. The impact of the Great Recession took a toll on Wall Street, Main Street, and the IRS. In 2005 there were approximately 6,478,000 accounts in IRS collection. By the end of 2018 that number skyrocketed to over 14 million. With the faltering economy came early distributions from retirement plans, cancellation of debt income and reduced federal withholding, which ultimately caused increased tax liabilities taxpayers could not timely pay. To complicate matters, things only got worse in 2020 when COVID-19 hit the United States, resulting in not only businesses shutting down for months on end, but also the IRS and state tax agencies. Many taxpayers were furloughed or laid off, and even if they had wanted to pay their back taxes there was no one to receive them at the IRS for over two months.
 

IRS Resources to Assist Taxpayers are Low

 

The shrinking operational budget at the IRS has stymied the resources available to assist taxpayers with their unpaid tax liability. This has led to long wait times to speak with an IRS representative. In fact, taxpayers are waiting several hours on hold just to reach an automated message that no one is able to assist them at this time. The average time on hold to reach some IRS services was approximately 108 minutes in 2017. That is if you don’t get disconnected automatically, which the IRS calls a “courtesy disconnect,” and which normally happens at around 120 minutes on hold.
 

One way to avoid dealing with the IRS yourself is to let TaxAudit represent you. Instead of you trying to navigate the IRS waters by yourself and waiting several hours on hold multiple times over the course of your case, one of TaxAudit’s seasoned tax professionals would deal with the IRS on your behalf.
 

Technology is Helping the IRS Find More Non-Filers

 

Conversely, the advancements in technology and increased exchange of information have inadvertently impacted those who choose to not file. The IRS Automated Underreporter Program and Automated Substitute for Return Program are making it harder for people to live off the grid, and easier for the IRS to file Automated Substitute for Returns and assess the income tax due. Nonfilers are often unable to pay the late taxes, interest and penalties due.
 

Private Debt Collection Agencies May Help with IRS Collections

 

On December 3, 2015, Congress passed the Fixing America's Surface Transportation Act (or FAST Act), and President Obama signed the act into law the following day. Buried deep in the recesses of this transportation act are provisions that have changed the landscape of the IRS Collections process. For the third time Congress has mandated the use of private debt collection agencies to assist in the collection of past due tax debt. Additionally, there are new provisions within the FAST Act that authorize the government to revoke or deny a taxpayers’ passport when they owe over $50,000.
 

Don’t Ignore Tax Letters from the IRS or State

 

Frequently, taxpayers tend to take the tack of “If I ignore them, maybe they will go away.” This strategy does not work with the IRS and is an even more risky strategy if the notices are coming from the State, as state agencies tend to be more aggressive than the IRS in collections, particularly California, New York and Massachusetts. In fact, all three of these states have the authority to suspend a taxpayer’s driver’s license until their state tax bill is resolved. Get the professional help you need today to deal with your tax situation; it’s not that scary if you have help from a seasoned tax professional.
 

How TaxAudit Provides Relief to Taxpayers in Collections

 

TaxAudit provides a free consultation to any taxpayer who has IRS or state tax debt or owes back taxes. During this free consultation, the taxpayer will talk to a licensed tax professional who will answer the taxpayer's initial questions such as “Can we settle for a lesser amount?” or “I can’t afford to pay that – what should I do?” The high prevalence of late night TV and radio commercials advertising debt settlement with the IRS makes many taxpayers think they can bargain with the IRS on the amount they owe for pennies on the dollar. But can they really? TaxAudit will help determine what type of tax debt relief is appropriate for your specific tax situation.
 

Sometimes, clients do not contact TaxAudit until after they have entered the collection process. In this case, TaxAudit will review their collections situation and advise them regarding what the IRS’s next steps may be and what they can do about it. TaxAudit will also recommend one or multiple tax debt relief solutions to help relieve the taxpayer of some of the tax burden.

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Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

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