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How IRS Will Collect Owed Money

*The following article was updated in March 2024*

Not much invokes fear like filing your taxes and realizing you owe the Internal Revenue Services (IRS) money. While the amount you owe can sometimes feel overwhelming, it’s important you at least make an attempt to pay it. If not, the IRS

Collections will get involved and attempt to collect what they’re owed. Let’s look at how the IRS attempts to collect payments, and what you can do to avoid them.

There are three tools that the IRS uses to collect payments from those who owe money: IRS levies, IRS liens, and wage garnishments.

IRS LevyA levy is when the IRS collects the money you owe directly from your bank account. This method is only used after they try several times to contact you and have failed to reach you. If you receive a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” you have little time left to contact the IRS before they freeze your account.

IRS Liens A lien is the government’s legal claim to property that is held in your name. This includes property that you may acquire in the future. For example, a lien could be put on your house or a future house or property you may purchase.

Wage Garnishments – This happens when the IRS sends your employer a Notice of Wage Garnishment. This notice requires that your employer must pay the IRS the amount on each payday that the levy remains in effect.

These three situations are really worse case scenarios, and you want to attempt to pay your debt before liens, levies and garnishments occur. Luckily, the IRS does have payment plans in which they will allow you to pay the taxes you owe in an extended timeframe.

Generally, the IRS will allow you to set up a streamlined payment plan with no lien if you owe less than $50,000, you demonstrate you can’t pay the amount you owe now, and you can pay off the taxes owed in three years or less. There are essentially four payment plans available:

Short-term Payment Plan – This plan is for taxpayers who can pay off their debt in 120 days or less, and you are required to pay accrued penalties or interest until the balance is paid in full.

Long-term Payment Plan – This is what’s known as an installment agreement. It’s for taxpayers who need more than 120 days to pay the amount, and the payments are taken through automatic withdrawals from your checking account. There is a $31 setup fee, and you will need to pay any accrued penalties or interest until the balance is paid in full.

Streamline Payment Plan – If your balance is below $50,000 the IRS will allow you to streamline your payment plan over 72 months with no financial information provided, and penalties and interest still will accrue until the balance is paid in full.

Balance greater than $100,000 – The IRS will require you to provide financial information including income and proof of expenses. Additionally, all expenses may not be allowed by the IRS as there are national standards and some expenses are limited by the IRS.

Owing the IRS is intimidating. But there are ways to lower your tax burden or possibly have penalties waived. If you find yourself in a situation where you owe the IRS, consult with an experienced attorney for advice and guidance.

Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing tax problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving the IRS and state tax problems.

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Allison Soares

Allison Soares, a renowned tax attorney, excels in representing clients before the IRS, FTB, EDD, and CDTFA. With a Bachelor of Arts in Finance from the University of Wisconsin, Milwaukee, and a transformative teaching stint in Brazil, Allison’s diverse background enriches her legal expertise. She pursued law at St. Thomas University School of Law, Miami, complementing it with an MBA in accounting and forensic accounting. Further honing her skills, she obtained a Master of Laws in Taxation from the University of San Diego School of Law. As an adjunct professor at San Diego State University, Allison imparts her knowledge in tax procedures, practice, and ethics. Her accolades include being named Best of the Bar by the San Diego Business Journal and multiple Super Lawyer recognitions. Committed to community service, she volunteers with Forever Balboa Park and Friends of Balboa Park. Allison’s authoritative contributions in tax law are showcased through her publications and speaking engagements.

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