Facing IRS collections for unpaid taxes can be one of the most frustrating experiences. The IRS considers a taxpayer delinquent when they fail to pay taxes that they owe the IRS after the tax return filing deadline. These back taxes can attract IRS collections. The IRS collection process can be challenging, especially if you fail to make any effort to settle your back taxes or if you attempt to hide from and avoid the IRS altogether.
What Are Back Taxes?
Back taxes are unpaid taxes from the year they were due. You can have back taxes for federal tax returns, state tax returns, and/or local taxes. Back taxes collect interest and penalties regularly and should be paid back promptly.
What IRS Collections Actions are Taken to Collect Unpaid Taxes?
Failure to pay taxes that you owe the IRS can result in seizure of assets, garnishment of wages, and even placement of liens on your property. Specifically, the following are three common IRS collections actions taken to collect unpaid taxes:
Filing a Notice of Federal Tax Lien: The federal tax lien refers to a claim against the property of a delinquent taxpayer. The government protects its interest in a range of properties such as real estate, personal property, and financial assets. The federal tax lien occurs as part of the IRS collection process after the IRS has sent notice of your tax balance due and you do not settle your total back taxes amount.
Serving a Notice of Levy: Notice of levy is another standard IRS collections effort used to collect unpaid taxes. The levy process implies that the IRS can confiscate the property of a delinquent taxpayer and sell it to satisfy back taxes. The IRS typically levies physical properties such as cars, boats, and real estate. However, the IRS can also levy other assets, including wages, retirement income, social security benefits, and bank accounts.
Offsetting a Federal Tax Refund: The IRS can also apply expected federal tax refunds to offset your unpaid taxes as part of the IRS collection process. As such, if you are a delinquent taxpayer, income tax refunds will be seized to satisfy back taxes.
When Does the IRS Collection Process Start?
The IRS will consider you a delinquent taxpayer if you have back taxes that you owe the IRS after the filing deadline lapses. If you fail to pay your unpaid taxes in full when filing your tax return, the IRS will send a notice for the tax amount owed. These unpaid taxes notices typically start the IRS collection process. IRS collections will only stop once you clear your tax debt or until the legally provided time for collection expires.
How Long Can the IRS Collect Back Taxes?
Federal laws grant a 10-year statute of limitations on the IRS collection process, which implies that the IRS will try to collect your unpaid taxes for up to 10 years from when they were assessed. The last date for IRS collections is known as the Collection Statute Expiration Date (CSED). Once the ten years elapse, the IRS collection process will stop. However, there are exceptions to this rule that allow the IRS to continue pursuing some categories of back taxes even after the IRS collections CSED expires.
What If I Can’t Pay My Taxes?
The IRS provides several options to taxpayers who cannot immediately pay unpaid taxes. The ideal tax relief services or IRS Fresh Start Program that works for you depends on how much back taxes you owe and your current financial standing.
The following are some of the IRS relief options available for you:
- IRS Payment Plans and Installment Agreements: Payment plans and installments agreements are tax repayment plans that allow you to make monthly payments to pay off unpaid taxes. With an installment agreement, the amount you owe is broken down into affordable installments to pay each month instead of paying a lump sum.
- Offer in Compromise (OIC): An OIC lets a taxpayer settle their unpaid taxes for a fraction of the back taxes amount. It can be the ideal tax relief option if paying your full back taxes results in financial hardship. Before the IRS approves your Offer in Compromise application, they first determine your ability to pay, income, expenses, and asset equity.
- Currently Not Collectible (CNC): CNC indicates that you do not have the ability to pay any of your unpaid taxes due to a temporary financial hardship. With this option, the IRS will cease the IRS collection process until such a time when your financial situation improves.
The most effective way to avoid IRS collections is to file your taxes before the deadline and pay the tax you owe the IRS. The IRS typically charges penalties for filing late. The agency also charges daily interest on unpaid taxes, and the longer you wait, the more interest you will owe the IRS.
If you are facing IRS collections and going through a financial challenge that prevents you from immediately paying your back taxes, an IRS expert at Wiztax can help you choose the best tax relief option for your tax situation. Call us today at (866) 568-4593 to learn more about how we can help, or start here to take our free online evaluation. Regardless, we promise to save you thousands in fees.
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