The tax returns are filed either by taxpayer(s) or a substitute tax return (SFR) by the IRS if the taxpayer failed to file one. Then the return is accepted by the IRS, your tax liability is recorded in your account. At this point, if your withholding is less than the liability, the IRS will send you a tax bill (Notice: CP14) and demand the payment. When you owe taxes to the U.S. Treasury and don’t pay, a claim against you by the federal government arises by law (Internal Revenue Code § 6321). The existence of the government’s claim is not public information initially and is called a “secret” or “statutory” or automatic lien.
The tax lien automatically attaches to everything you own or have right in. States also have lien rights. Once the IRS sends you a valid tax bill, you have 30 days to pay. This starts the collection period of 10 years also known as statute of limitations (CSED). Under certain circumstances where the IRS can not enforce the collection procedures, additional time is added to the 10 year and this extension of the collection period is called tolling.
After the initial tax bill (Notice: CP 14 or equivalent), if the bill does not get paid, you will start to get the IRS notices for demand to pay (CP 501) and two reminder notices (CP 502 and CP 503), and threat to levy (CP 504) . In the beginning the notices are requests or reminders to pay and then it changes to more threatening letters. Just like taxpayers, the IRS has to follow the rules as well and the taxpayer has certain rights. The next is called letter 11 (final notice of intent to levy and taxpayer’s right to a hearing). If you do not take steps to remedy the situation, 30 days after the letter is mailed to you, the IRS will use liens and levies, and enforce the tax bill collection. I will write about lines and levies in future blog posts. In this post I am going to cover what you should do if you can't pay the full amount.
If you are compliant with your tax filing, I can help you in resolving your tax issues. If you are not non-compliant, I can help you to file all the required tax returns. If you don't have all the tax documents, I can help you with that as well.
Steps to take if you receive a notice
1 Loan – Obtaining a loan, from a relative, friend, or borrowing on credit card/ home equity, is an option which may or may not be available to all taxpayers.
2. Installment Agreement – If the taxpayer cannot pay the full tax liability on the due date, the IRS will allow an installment agreement. There are different kinds of payment plans. In addition, there are user fees and interest associated with them as well. The caveat is that you have to be compliant for filing requirements, and I will talk about compliance issues in my next post. In making the agreement, you will have to agree to keep all future years' tax obligations current. If you don’t make your payments on time or have an outstanding past due amount in a future year, you will be in default of the agreement, and the IRS has the option of taking enforcement actions to collect the entire amount owed. If you would like to discuss different installment plans, give me a call.
3. Offer-in-Compromise (OIC) – The IRS has 10 years to collect the tax and if the taxpayer cannot pay the full amount, the IRS can accept less than the full amount owed. For OIC offer financial analysis is required to that the taxpayer is unable to pay the full amount. There are rules to figure out an offer that the IRS might accept. The IRS has updated the policies for OIC in November 2021.
4. Uncollectible - Under the current economic environment if you don’t have money and equity to pay the IRS, currently uncollectible may be an option. The IRS will not be on your back for now and will not issue tax lien and levies.
If you or someone you know have additional questions regarding filing past due taxes, tax payments, levies, liens, or other tax related matters, give me a call or send me a message.
Many tax preparers and accounting professionals are extremely busy due to the complexity of tax regulations brought about by the COVID-19 pandemic and the IRS collection efforts to contact taxpayers with unfiled tax returns. If you or somebody else you know are having IRS issues please feel free to contact me at email@example.com or call me 301-461-2022. The IRS doesn't like to be ignored. Be proactive.
Enrolled agents are federal tax practitioners licensed by the Treasury Department.