What Can the IRS do to Collect Unpaid Taxes?
Failure to pay your taxes on time can have dire consequences. If you owe taxes to the IRS and fail to pay on time, you can be held liable not only for the payment of the taxes owed but also for interest. Following is an overview of what the IRS can do to collect money that it feels it is owed.
The IRS Bill
If the IRS feels you owe tax money and have not paid, it will send you a bill. When you receive this bill, you have three options. You can agree with the IRS and pay the money in full, ask for more time to pay the money owed or dispute the bill.
If you need more time to pay the money, you will have to notify the IRS in writing. You will be provided with various payment options and will need to choose the one that works best for you.
If you decide to dispute the bill, you will need to bring evidence to support your position. This evidence will need to be turned in to your local IRS office. The IRS will investigate the matter and either issue a new bill or determine that the original bill is correct.
What Happens Next?
If you fail to fulfill the terms and conditions of the payment plan agreed to by the IRS and/or ignore the IRS bill, then the IRS can file put a lien on your assets, levy the funds from your bank account, wages and/or Social Security funds or offset a refund that you are entitled to.
A lien can be placed on any property you own, even if you purchase this property after receiving an IRS bill. The lien makes it impossible for you to collect the funds earned from the sale of these assets; instead, the money goes directly to the IRS to cover back taxes owed.
When a levy is placed on your monetary assets, you will be notified in writing by the IRS. The IRS can withdraw money from any bank account in the United States, so switching over to a new account will not solve your problem. The IRS can also seize your assets outright, sell them off and then collect the funds from the sale. If the IRS earns more from the sale than what it was owed, you can get the rest of the money by filing the proper paperwork.
It should also be noted that the IRS can offset not only federal refunds but also state tax refunds. This can be done for a number of years, depending on how much money you owe.
Thankfully, the IRS is required to provide you with advance notification before taking serious measures to collect back taxes. If you are undergoing bankruptcy proceedings, then the IRS will pause its efforts to collect back taxes until the proceedings are finished. If you truly cannot pay the money you owe, you may be allowed to pay in installments. However, the one mistake you cannot afford to make is to ignore IRS notification of money owed. Your debt will grow and the steps you will need to take to resolve the problem will become more complicated and costly.
Sources: http://www.irs.gov/taxtopics/tc201.html, http://www.irs.gov/pub/irs-pdf/p594.pdf
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