Collection Powers of the IRS

by | Mar 27, 2023

The Internal Revenue Service (IRS) has various collection powers that it can use to collect on back taxes owed by taxpayers. These collection powers range from mild to severe, and it’s essential to understand them to know how to deal with the IRS effectively when you owe back taxes. This blog post will discuss the various types of collection powers used by the IRS to collect on back taxes.


  1. Liens


A tax lien is a legal claim against a taxpayer’s property, including real estate, personal property, and financial assets. A lien ensures that the government gets paid if any assets are sold or liquidated. An IRS lien gives the government a legal right to the taxpayer’s property interest, and it can be filed against the taxpayer’s business or personal assets.


The IRS generally files a Notice of Federal Tax Lien (NFTL) after the taxpayer has failed to pay their taxes or respond to the collection letters. The NFTL informs creditors and other interested parties that the government has a lien on the taxpayer’s property.


A tax lien may adversely affect the taxpayer’s credit score, making it difficult to obtain credit in the future. However, the IRS may withdraw the lien after the tax debt is paid in full.


  1. Levies


A levy allows the IRS to seize and sell a taxpayer’s property to satisfy their tax debt. The IRS may seize a taxpayer’s real estate, financial accounts, and personal property, including cars, boats, and garnishing wages. The IRS can also seize a taxpayer’s retirement accounts if they owe back taxes.


The IRS usually sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing before levying a taxpayer’s assets. This notice informs the taxpayer of their right to appeal or request a Collection Due Process (CDP) hearing before a levy is issued.


Once the IRS issues a levy, the taxpayer has only 21 days to respond before the levy can be executed. It’s essential to act quickly if you receive a Final Notice of Intent to Levy to avoid having the IRS seize your assets.


  1. Wage Garnishment


Wage garnishment is a type of levy that allows the IRS to seize a portion of a taxpayer’s salary or wages to pay off their tax debt. The IRS may issue a wage garnishment order, requiring the taxpayer’s employer to withhold a portion of their wages and send it directly to the government to satisfy the taxpayer’s tax debt.


Wage garnishment can cause significant financial hardship on taxpayers, making it challenging to pay for rent, food, utilities, and other necessities. The IRS usually issues a series of notices before garnishing a taxpayer’s wages, including a Notice of Intent to Levy and Affording the Taxpayer Due Process Right.


To prevent wage garnishment, taxpayers should contact the IRS as soon as they receive a notice to make payment arrangements or seek legal help.


  1. Seizure of Assets


The IRS may seize and sell the taxpayer’s assets, including their home, car, boat, and other personal property, to satisfy their tax debt. Seizure of assets is generally the most severe collection power used by the IRS, and it’s rarely used.


The IRS usually sends a series of notices before seizing a taxpayer’s assets, including a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. The taxpayer has 30 days to respond to the notice and request a hearing.


If the IRS seizes and sells the taxpayer’s assets, they will apply the sale proceeds to the taxpayer’s tax debt. Any excess proceeds will be refunded to the taxpayer.


  1. Passport Revocation


The IRS has the power to revoke or deny a taxpayer’s passport if they owe more than $50,000 in back taxes, including penalties and interest. The passport revocation applies to both domestic and international travel and may severely limit the taxpayer’s ability to travel.


The IRS notifies the taxpayer of their intent to revoke their passport and provides them with an opportunity to resolve the tax debt before revoking the passport. The notification usually includes a Notice CP508C, which informs the taxpayer that the IRS has filed a certification to revoke their passport.


If the taxpayer fails to resolve the tax debt, the State Department will revoke their passport, making it challenging for them to travel.


  1. Public Record


The IRS may file a public record of the tax lien against the taxpayer. The public record may negatively impact the taxpayer’s credit rating and may cause a significant amount of stress and shame.


Once the taxpayer pays the tax debt in full, the IRS will remove the lien from the public record.


In conclusion, the IRS has various collection powers that it can use to collect on back taxes owed by taxpayers. It’s essential to act promptly when you receive a notice from the IRS and seek professional assistance from a tax attorney. A tax attorney can help you understand your rights and obligations regarding the back taxes and negotiate with the IRS to reduce or eliminate any tax debt. With the help of a tax attorney, you can minimize the impact of IRS collection actions on your life and start resolving your tax debt.


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