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IRS Collection Process

Collections Overview

If you don't pay your taxes on time, the IRS may:

  1. Federal Tax Lien/Notice of Federal Tax Lien ("NFTL")
  2. Levy of property or rights to property and subsequent sale*
  3. Garnishment (which is levy of wages)
  4. Bank Account Seizure (which is a levy of your bank account)
  5. Summons to compel you or a third party to meet with the IRS and provide information, documents or testimony
  6. Passport revocation, not re-issue, or not issue
  7. Offset tax refunds

*There is no legal difference between a seizure and a levy. Throughout this publication, the IRS will use both terms interchangeably. Generally, before property is seized, the IRS have to send you Notice of Intent to Levy and Notice of Your Right to a Hearing. If you don't pay your overdue taxes, make other arrangements to satisfy the tax debt, or request a hearing within 30 days of the date of this notice, the IRS may seize your property.

Options When In Collections:

  1. Pay in full
  2. Request an extension / Currently Non-Collectible Status
  3. Supervisor/Manger Conference
  4. Appeal
  5. Installment Agreement
  6. Offer In Compromise (Doubt as to Liability)
  7. Offer In Compromise (Unable to pay full balance)
  8. Bankruptcy
  9. Innocent Spouse Relief

Collections Period

The IRS can attempt to collect your taxes up to 10 years from the date they were assessed. However, there are ways this time period can be suspended. For more information, read the Collections Period sub-section in the Collections In Detail section below.

 

Collections In Detail

Collection Actions

Federal Tax Lien

A federal tax lien is a legal U.S. government claim against all your current and future property. When you don't pay your first bill for taxes due, a lien is created by law and attaches to your property. It applies to property (such as your home and car) and to any current and future rights you have to property.

Notice of Federal Tax Lien

A Notice of Federal Tax Lien (NFTL) provides public notice to creditors that a lien exists. The IRS files the Notice of Federal Tax Lien so the IRS can establish the priority of IRS's claim versus the claims of other creditors. The Notice of Federal Tax Lien is filed with local or state authorities, such as county recorder of deeds or the Secretary of State offices. If a Notice of Federal Tax Lien is filed against you, it may be reported by consumer credit reporting agencies. This can have a negative effect on your credit rating and make it difficult for you to receive credit (such as a loan or credit card). Employers, landlords and others may also use this information and not favorably view the fact that a Notice of Federal Tax Lien has been filed against you. However by law, there will be no filing of the Notice of Federal Tax Lien and no levies issued to collect an individual shared responsibility payment associated with the Affordable Care Act.

What to do if a Notice of Federal Tax Lien is filed against you

Pay the full amount you owe immediately or contact an attorney. The Notice of Federal Tax Lien only shows your assessed balance as of the date of the notice. It doesn't show your payoff balance or include IRS charges for filing and releasing the lien. To find out the full amount you must pay to have the lien released, call 1-800-913-6050 or 859-320-3526 if you are calling from outside of the United States. If you have questions, call the number on your lien notice or 1-800-829-1040 or visit www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Understandinga-Federal-Tax-Lien, or view instructional videos at www.irsvideos.gov/ Individual/IRSLiens.

How to appeal a Notice of Federal Tax Lien

Within five business days of the first filing of the Notice of Federal Tax Lien for a specific debt, the IRS will send you a Notice of Federal Tax Lien Filing and Your Right to a Collection Due Process Hearing. You'll have until the date shown on the notice to request a Collection Due Process hearing with the Office of Appeals. Send your Collection Due Process hearing request to the address on the notice. For more information, see Form 12153, Request for a Collection Due Process or Equivalent Hearing. After your Collection Due Process hearing, the Office of Appeals will issue a determination on whether the Notice of Federal Tax Lien should remain filed, or whether it should be withdrawn or released. If you disagree with the determination, you have 30 days after it's made to seek a review in the U.S. Tax Court. In addition to any Collection Due Process rights you may have, you may also appeal a proposed or actual filing of a Notice of Federal Tax Lien under the Collection Appeals Program.

Reasons the IRS will “release” a Federal Tax Lien

A “release” of a Federal Tax Lien means that the IRS has cleared both the lien for your debt and the public Notice of Federal Tax Lien. The IRS does this by filing a Certificate of Release of Federal Tax Lien with the same state and local authorities with whom the IRS filed your Notice of Federal Tax Lien. The IRS will release your lien if:

  • Your debt is fully paid,
  • Payment of your debt is guaranteed by a bond, or
  • You have met the payment terms of an Offer in Compromise which the IRS has accepted, or
  • The period for collection has ended. (In this case, the release is automatic.)

For more information, see Publication 1450, Instructions on How to Request a Certificate of Release of Federal Tax Lien.

Reasons the IRS may “withdraw” a Notice of Federal Tax Lien

A “withdrawal” removes the Notice of Federal Tax Lien from public record. The withdrawal tells other creditors that the IRS is abandoning the lien priority. This doesn't mean that the federal tax lien is released or that you're no longer liable for the amount due. The IRS may withdraw a Notice of Federal Tax Lien if:

  • You've entered into an Installment Agreement to satisfy the tax liability, unless the Agreement provides otherwise. For certain types of taxes, the IRS routinely grant Notice of Federal Tax Lien withdrawal requests if you've entered into a direct debit installment agreement and meet certain other conditions,
  • It will help you pay your taxes more quickly,
  • The IRS didn't follow IRS procedures,
  • It was filed during a bankruptcy automatic stay period, or
  • It's in your best interest and in the best interest of the government. For example, this could include when your debt has been satisfied and you request a withdrawal. For more information, see Form 12277, Application for Withdrawal of Filed Notice of Federal Tax Lien or the instructional video at www.irsvideos.gov/Individual/IRSLiens/LienNoticeWithdrawal.
How to apply for a “discharge” of a Federal Tax Lien from property

A “discharge” removes specific property from the federal tax lien. There are several circumstances under which a discharge may be granted. For example, the IRS may issue a Certificate of Discharge if you're selling property and the government receives its interest through the sale. For more information on whether you qualify for a discharge, see Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from Federal Tax Lien. To watch an instructional video about Publication 783, visit www.irsvideos.gov/Individual/ IRSLiens.

Levy

A levy is a legal seizure that actually takes your property (such as your house or car) or your rights to property (such as your income/wages, bank account, retirement account or Social Security payments) to satisfy your tax debt. The IRS can't seize your property if you have a current or pending Installment Agreement, Offer in Compromise, or if the IRS agrees that you're unable to pay due to economic hardship, meaning seizing your property would result in your inability to meet basic, reasonable living expenses.

 IRS may seize (“levy”) your property or rights to property

If you don't pay your taxes (or make arrangements to settle your debt),the IRS could seize and sell your property. The IRS will not seize your property to collect an individual shared responsibility payment. The IRS usually seizes only after the following things have occurred:

  • IRS assessed the tax and sent you a bill,
  • You neglected or refused to pay the tax, and
  • IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the seizure.

However, there are exceptions for when the IRS doesn't have to offer you a hearing at least 30 days before seizing your property. These include situations when:

  • The collection of the tax is in jeopardy,
  • A levy is served to collect tax from a state tax refund,
  • A levy is served to collect the tax debt of a federal contractor, or
  • A Disqualified Employment Tax Levy (DETL) is served. A DETL is the seizure of unpaid employment taxes and can be served when a taxpayer previously requested a Collection Due Process appeal on employment taxes for other periods within the past 2 years. If the IRS serve a levy under one of these exceptions, the IRS will send you a letter explaining the seizure and your appeal rights after the levy is issued.
What you should do if your property is seized (“levied”)

If your property or federal payments are seized, call the number on your levy notice or 1-800-829-1040. If you're already working with an IRS employee, call him or her for assistance. Examples of property the IRS can seize (“levy”):

  • Wages, salary, or commission held by someone else. If the IRS seizes your rights to wages, salary, commissions, or similar payments that are held by someone else, the IRS will serve a levy once, not each time you're paid. The one levy continues until your debt is fully paid, other arrangements are made, or the collection period ends, or the levy is released. Other payments you receive, such as dividends and payments on promissory notes, are also subject to seizure. However, the seizure only reaches the payments due or the right to future payments as of the date of the levy.
  • Your bank account. Seizure of the funds in your bank account will include funds available for withdrawal up to the amount of the seizure. After the levy is issued, the bank will hold the available funds and give you 21 days to resolve any disputes about who owns the account before sending us the money. After 21 days, the bank will send us your money, and any interest earned on that amount, unless you have resolved the issue in another way.
  • Your retirement account, including Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA; IRAs, Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans) and the Thrift Savings Plan. Depending on the terms of the plan a levy may attach to the funds in which you have a vested right.
  • Your federal payments. As an alternative to the levy procedure used for other payments such as dividends and promissory notes, certain federal payments may be systemically seized through the Federal Payment Levy Program in order to pay your tax debt. Under this program, the IRS can generally seize up to 15% of your federal payments (up to 100% of payments due to a vendor for property, goods or services sold or leased to the federal government). The IRS will serve the levy once, not each time you are paid. The levy continues until your debt is fully paid, other arrangements are made, the collection period ends, or the IRS releases the levy. The federal payments that can be seized in this program include, but aren't limited to, federal retirement annuity income from the Office of Personnel Management, Social Security benefits under Title II of the Social Security Act (OASDI), and federal contractor/vendor payments.
  • Your house, car, or other property. If the IRS seize your house or other property, the IRS will sell your interest in the property and apply the proceeds (after the costs of the sale) to your tax debt. Prior to selling your property, the IRS will calculate a minimum bid price. The IRS will also provide you with a copy of the calculation and give you an opportunity to challenge the fair market value determination. The IRS will then provide you with the notice of sale and announce the pending sale to the public, usually through local newspapers or flyers posted in public places. After giving public notice, the IRS will generally wait 10 days before selling your property. Money from the sale pays for the cost of seizing and selling the property and, finally, your tax debt. If there's money left over from the sale after paying off your tax debt, the IRS will tell you how to get a refund.
  • Your federal tax refund. The Federal Payment Levy Program (FPLP) is an automated levy program the IRS has implemented with the Department of the Treasury, Bureau of the Fiscal Service (BFS). The IRS will send you a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing, CP 90 or CP 297, if another Final Notice has not already been issued. See Tax Information for Appeals for additional information about your right to a hearing. If the IRS doesn't hear from you within 30 days from the date of the Final Notice, the IRS will withhold your tax refund to the extent it satisfies your tax debt. See Publication 594, The IRS Collection Process PDF, and Publication 1, Your Rights as a Taxpayer PDF, for additional information. For FPLP assistance call toll-free at 1-800-829-7650 or 1-800-829-3903.
  • Your state tax refund. Under the State Income Tax Levy Program, the IRS may levy your state tax refund. Currently, this only applies to individual state tax refunds, but may include business state tax refunds in the future. SITLP matches federal tax delinquent accounts against a database of state tax refunds for states participating in SITLP. If your state tax refund is levied, the state will issue a notice advising you of the levy. The IRS will also issue a notice, after the levy, offering you the opportunity to appeal the levy. The IRS notice will NOT be issued if you previously received a notice of the IRS's intent to levy that advised you of your right to a hearing. The state and IRS notices refer you to call (800) 829-7650 or (800) 829-3903 for assistance.
  • Your local tax refunds. Under the Municipal Tax Levy Program (MTLP), the IRS may levy your city/municipal tax refund to collect the federal tax liabilities you owe. Currently, this program only applies to individual income tax refunds; however, the IRS may include business tax refunds in the future. MTLP matches delinquent federal tax debts against a database of city/municipal tax refunds for agencies participating in MTLP. Levy proceeds will be applied to your federal tax liability. Prior to the levy, the IRS will have issued a notice of intent to levy and notice of your right to a hearing about the levy. In addition, your city/municipal agency will issue a notice advising you if your tax refund is levied. Your city/municipal agency will direct you to call (800) 829-7650 or (800) 829-3903 for assistance.
Property that can't be seized (“levied”)

Certain property is exempt from seizure. For example, the IRS can't seize the following: unemployment benefits, certain annuity and pension benefits, certain service-connected disability payments, worker's compensation, certain public assistance payments, minimum weekly exempt income, assistance under the Job Training Partnership Act, and income for court-ordered child support payments. The IRS also can't seize necessary schoolbooks and clothing, undelivered mail, certain amounts worth of fuel, provisions, furniture, personal effects for a household, and certain amounts worth of books and tools for trade, business, or professions. There are also limitations on the IRS's ability to seize a primary residence and certain business assets. Lastly, the IRS can't seize your property unless the IRS expects net proceeds to help pay off your tax debt.

How to appeal a proposed seizure (“levy”)

You can request a Collection Due Process hearing within 30 days from the date of your Notice of Intent to Levy and Notice of Your Right to a Hearing. Send your request to the address on your notice. For more information, see Form 12153, Request for a Collection Due Process or Equivalent Hearing. At the conclusion of your hearing, the Office of Appeals will provide a determination. You'll have 30 days after the determination to challenge it in the U.S. Tax Court. If Collection Due Process rights aren't available for your case, you may have other appeal options, such as the Collection Appeals Program.

Reasons the IRS “release” a levy

The Internal Revenue Code specifically provides that the IRS must release a levy if the IRS determine that:

  • You paid the amount you owe,
  • The period for collection ended prior to the levy being issued,
  • It will help you pay your taxes,
  • You enter into an Installment Agreement and the terms of the agreement don't allow for the levy to continue,
  • The levy creates an economic hardship, meaning the IRS has determined the levy prevents you from meeting basic, reasonable living expenses, or
  • The value of the property is more than the amount owed and releasing the levy won't hinder IRS ability to collect the amount owed.

The IRS will also release a levy if it was issued improperly. For example, the IRS will release a levy if it was issued:

  • Against property exempt from seizure,
  • Prematurely,
  • Before the IRS sent you the required notice,
  • While you were in bankruptcy and an automatic stay was in effect,
  • When the expenses of seizing and selling the levied property would be greater than the fair market value of the property,
  • While an Installment Agreement request, Innocent Spouse Relief request, or Offer in Compromise was being considered or had been accepted and was in effect, or
  • While the Office of Appeals or Tax Court was considering a collection due process case and the levy wasn't a Disqualified Employment Tax Levy to collect employment taxes, a state refund, a jeopardy levy, or to collect the tax debt of federal contractor.
  • While the Office of Appeals or Tax Court is considering an appeal of the denial of innocent spouse relief.
Reasons the IRS may return seized (“levied”) property

The IRS may return your property if:

  • The seizure was premature,
  • The seizure was in violation of the law,
  • Returning the seized property will help the collection of your debt,
  • You enter into an Installment Agreement to satisfy the liability for which the levy was made, unless the Agreement does not allow for the return of previously levied upon property.
  • IRS didn't follow IRS procedures, or
  • It's in your best interest and in the best interest of the government.

The IRS may return property at any time if the property has not been sold. If the IRS decided to return your property, but it's already sold, the IRS will give you the money the IRS received from the sale. You can file a request for return of seized money or money from the sale of seized property, generally up to 9 months after the seizure.

How to recover seized (“levied”) property that's been sold

To recover your real estate, you (and anyone with interest in the property) may recoup it within 180 days of the sale by paying the purchaser what they paid, plus interest at 20% annually, compounded daily. If your property has been seized (“levied”) to collect tax owed by someone else, you may appeal the seizure under the Collection Appeals Program or file a claim under Internal Revenue Code section 6343(b), generally within 2 years of the seizure, or you may file a suit under Internal Revenue Code section 7426 for the return of the wrongfully seized property, generally within 2 years of the seizure. You may also appeal the denial of the request to return the wrongfully seized property under the Collection Appeals Program. For more information, see Publication 4528, Making an Administrative Wrongful Levy Claim under Internal Revenue Code section 6343(b).

How to recover economic damages

If the IRS wrongfully seized your property, the IRS lost or misplaced your payment, or there was a direct debit Installment Agreement processing error and you incurred bank charges, the IRS may reimburse you for charges you paid. For more information, see Form 8546, Claim for Reimbursement of Bank Charges. If your claim is denied, you can sue the federal government for economic damages. If the IRS intentionally or negligently didn't follow Internal Revenue law while collecting your taxes, or you're not the taxpayer and the IRS wrongfully seized your property, you may be entitled to recover economic damages. Mail your written administrative claim to the attention of  the Advisory Group Manager for your area at the address listed in Publication 4235, Collection Advisory Group Addresses. If you've filed a claim and your claim is denied, you can sue the federal government, but not the IRS employee, for economic damages.

Summons

A summons is used to secure information. If the IRS is trouble gathering information to determine or collect taxes you owe, the IRS may serve a summons. A summons legally compels you or a third party to meet with an officer of the IRS and provide information, documents and/or testimony. If you're responsible for a tax liability and the IRS serve a summons on you, you may be required to:

  • Testify,
  • Bring books and records to prepare a tax return, and/or
  • Produce documents to prepare a Collection Information Statement, Form 433-A or Form 433-B.

If you can't make your summons appointment, immediately call the number listed on your notice. If you don't call us and don't attend your appointment, the IRS may sue you in federal district court to require you to comply with the summons. If the IRS serves a third-party summons to determine your tax liability, you'll receive a notice indicating that the IRS is contacting a third party. Third parties can be financial institutions, record keepers, or people with information relevant to your case. The IRS won't review their information or receive testimony until the end of the 23rd day after the notice was given. You also have the right to:

  • Petition to reject (“quash”) the summons before the end of the 20th day after the date of the notice, or
  • Petition to intervene in a suit to enforce a summons to which the third party didn't comply.

If the IRS issue a third-party summons to collect taxes you already owe, you won't receive notice or be able to petition to reject or intervene in a suit to enforce the summons.

IRS action affecting passports

The Fixing America's Service Transportation (FAST) Act of 2015, enacted by Congress and signed into law on December 4, 2015, requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. Seriously delinquent tax debt means an unpaid, legally enforceable federal tax debt of an individual totaling more than $51,000 (including penalties and interest) for which a Notice of Federal Tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted, or a levy has been issued. If you are individually liable for tax debt (including penalties and interest) totaling more than $51,000 and you do not pay the amount you owe or make alternate arrangements to pay, the IRS may notify the State Department that your tax debt is seriously delinquent. The State department generally will not issue or renew, and may revoke, your passport after being notified of your seriously delinquent tax debt. For additional information on passport certification visit www.irs.gov/passports

Taxpayers assigned to a Private Collection Agency

Your delinquent account could be assigned to a Private Collection Agency. The IRS will notify you of the assignment before the Private Collection Agency contacts you and will send you Publication 4518, What You Can Expect When the IRS Assigns You to a Private Collection Agency. The notice from us will contain the name of the Private Collection Agency the IRS assigned your account to, along with the Private Collection Agency's address and phone number. To protect your privacy, The IRS's notice will also provide you with a unique ten-digit Taxpayer Authentication Number. Be sure to save this number. The Private Collection Agency will only work with you on your delinquent accounts after authenticating your identity using your Taxpayer Authentication Number. The IRS's contracts with Private Collection Agencies requires that they provide you with quality service and equitable treatment. For more information about the private debt collection program, visit www.irs.gov/businesses/small-businesses-selfemployed/private-debt-collection

Options When In Collections

Payment In Full

The fastest resolution available to taxpayers is to simply pay the entire tax liability in full. Based on the amount of your tax liability, it may be wise to borrow funds, obtain a cash advance, or pay by credit card because the interest charged on these payment methods may be less than the interest and late payment penalties imposed by the tax laws.

Request an extension / Currently Non-Collectible Status

Ask that the IRS delay collection and report your account as currently not collectable If you can't pay any of the amount due because payment would prevent you from meeting basic living expenses, you can request that the IRS delay collection until you're able to pay. Prior to approving your request, the IRS may ask you to complete a Collection Information Statement and provide proof of your financial status. Please remember that even if the IRS delay collection, the IRS will still charge applicable penalties and interest until you pay the full amount, and the IRS may file a Notice of Federal Tax Lien (see page 5). The IRS may also request updated financial information during this temporary delay to review your ability to pay.

If the IRS determine that you cannot pay any of your tax debt, the IRS may report your account currently not collectible and temporarily delay collection until your financial condition improves. Being currently not collectible does not mean the debt goes away, it means the IRS has determined you cannot afford to pay the debt at this time. Prior to approving your request to delay collection, the IRS may ask you to complete a Collection Information Statement (Form 433-F PDF, Form 433-A or Form 433-B) and provide proof of your financial status (this may include information about your assets and your monthly income and expenses). You should know that if the IRS does delay collecting from you, your debt will increase because penalties and interest are charged until you pay the full amount. During a temporary delay, the IRS will again review your ability to pay. The IRS may also file a Notice of Federal Tax Lien to protect the government's interest in your assets.


Supervisor/Manger Conference and Appeal

See the page on About IRS Appeals.

Installment Agreement

Apply for an Installment Agreement (Payment Plan) An Installment Agreement with the IRS means that the IRS will allow you to make smaller periodic payments over time if you can't pay the full amount at once. A setup fee applies to all agreements over 120 days. There are several ways to apply for an Installment Agreement:

  • Online, using the Online Payment Agreement application at www.irs.gov/OPA. You can apply online for a reduced setup fee if the total combined balance of individual income tax, penalty and interest you owe is $50,000 or less. Short-term payment plans of 120-days or less and monthly installment agreements are available. If you own a business and owe $25,000 or less in combined payroll taxes, penalty and interest for the current and prior calendar year, you can also use the Online Payment Agreement to request a installment agreement. To view an instructional video on the Online Payment Agreement application, visit Online Payment Agreement.
  • By phone Please call the number on your bill or 1-800-829-1040.
  • By mail Please complete Form 9465, Installment Agreement Request. In addition to Form 9465, if you want to make your payments by payroll deduction, complete Form 2159, Payroll Deduction Agreement. If you owe more than $50,000, you will also need to complete Form 433F, Collection Information Statement. Mail your form to the address on your bill.
  • In person at your local IRS office near you, please visit www.irs. gov/localcontacts.

If you request a payment plan online you will receive immediate notification if your agreement is approved. If you request a payment plan by mail, you can reduce the accrual of penalties and interest by making voluntary payments until you're notified whether the IRS has accepted your payment plan request. The IRS's acceptance of your interim payments doesn't mean the IRS has approved your request. The IRS will notify you in writing once the IRS has made its decision. Prior to approving your Installment Agreement request, the IRS may ask you to complete a Collection Information Statement (Form 433F, 433-A and/or Form 433-B) and provide proof of your financial status. Please have your financial information available if you apply over the phone or at an IRS office. For more information, see Publication 1854, How to Complete a Collection Information Statement (Form 433-A). If the IRS approve your request, the IRS will still charge applicable interest and penalties until you pay the balance due in full, and may file a Notice of Federal Tax Lien (see page 5). If the IRS reject your Installment Agreement request, you may request that the Office of Appeals review your case. For more information, see Publication 1660, Collection Appeal Rights. If you're unable to meet the terms of your approved Installment Agreement, please contact us immediately.

With an Installment Agreement, you can pay by direct debit, through payroll deductions, electronic funds transfer or check. The setup fee is reduced if you make your payments by direct debit. You can also pay a reduced user fee if you meet the IRS's low-income guidelines. The reduced fee can even be waived completely or reimbursed if you meet the IRS's low income guidelines. For more information, see Form 13844, Application for Reduced User Fee for Installment Agreements.

You do not need to submit the user fee with your installment agreement application. The fee can be taken from the initial payments made once the installment agreement is accepted. To be eligible for an Installment Agreement, you must file all required tax returns. 

Offer In Compromise

You may be eligible for an Offer in Compromise if you can't pay the amount you owe in full or through installments. By requesting an Offer in Compromise, you're asking to settle unpaid taxes for less than the full amount you owe. The IRS may accept an Offer in Compromise if:

  • The IRS agrees that your tax debt may not be accurate,
  • You have insufficient assets and income to pay the amount due, or
  • Because of your exceptional circumstances, paying the amount due would cause an economic hardship or would be unjust.

For an Offer in Compromise to be considered, you must pay an application fee and make an initial or periodic payment for all Form 656 submissions. However, low income taxpayers may qualify for a waiver of the application fee and initial or periodic payment. For more information, please see the Low-Income Certification form found in Form 656-B, Offer in Compromise Booklet.

Before the IRS can consider your offer, you must file all tax returns you are legally required to file, make all required estimated tax payments for the current year, and make all required federal tax deposits for the current quarter. The IRS can't consider your offer if you are in bankruptcy or and generally if you are currently undergoing an audit. Use the Offer in Compromise Pre-Qualifier to explore the possibility that the Offer in Compromise program may be a realistic option to resolve your balance due. To apply for an Offer in Compromise, complete one of the following forms:

  • Form 656-L, Offer in Compromise (Doubt as to Liability) Complete this if there is a genuine dispute as to the existence or amount of the correct tax debt under the law.
  • Form 656, Offer in Compromise Complete this if you're unable to pay the amount due, or have an economic hardship, or have another special circumstance that would cause paying the amount due to be unjust. For more information, see Form 656-B, Offer in Compromise Booklet or visit www.irs.gov/Individuals/Offer-in-Compromise-1.

Bankruptcy

If you owe past due federal taxes that you cannot pay, bankruptcy may be an option.

For individuals, the most common type of bankruptcy is a Chapter 13. Before you consider filing a Chapter 13 here are some things you should know:

  • You must file all required tax returns for tax periods ending within four years of your bankruptcy filing.
  • During your bankruptcy you must continue to file, or get an extension of time to file, all required returns.
  • During your bankruptcy case you should pay all current taxes as they come due.
  • Failure to file returns and/or pay current taxes during your bankruptcy may result in your case being dismissed.

Partnerships and corporations file bankruptcy under Chapter 7 or Chapter 11 of the bankruptcy code. Individuals may also file under Chapter 7 or Chapter 11. For additional tax information on bankruptcy, refer to Publication 908, Bankruptcy Tax Guide and Publication 5082, What You Should Know about Chapter 13 Bankruptcy and Delinquent Returns.

Innocent Spouse Relief

Generally, both you and your spouse are responsible, jointly and individually, for paying any tax, interest, or penalties on your joint return. If you believe your current or former spouse should be solely responsible for an incorrect item or an underpayment of tax on your joint tax return, you may be eligible for Innocent Spouse Relief. This could change the amount you owe, or you may be entitled to a refund. You must submit Form 8857, Request for Innocent Spouse Relief, no later than two years from the date of the IRS's first attempt to collect the outstanding debt, except for requests for equitable relief under Internal Revenue Code section 6015(f). For additional information, see Publication 971, Innocent Spouse Relief.

 

Collection Period

The IRS can attempt to collect your taxes up to 10 years from the date they were assessed. However, there are ways this time period can be suspended. For example, by law, the time to collect may be suspended while:

  • The IRS is considering your request for an Installment Agreement or Offer in Compromise.
  • If your request is rejected, the IRS will suspend collection for another 30 days, and during any period the Appeals Office is considering your appeal request.
  • You live outside the U.S. continuously for at least 6 months. Collection is suspended while you're outside the U.S.
  • The tax periods the IRS is collecting on are included in a bankruptcy with an automatic stay. We will suspend collection for the time period the IRS can't collect because of the automatic stay, plus 6 months. You request a Collection Due Process hearing. Collection will be suspended from the date of your request until a Notice of Determination is issued or the Tax Court's decision is final.
  • The IRS is considering your request for Innocent Spouse Relief. Collection will be suspended from the date of your request until 90 days after a Notice of Determination is issued, or if you file a timely petition to the Tax Court, until 60 days after the Tax Court's final decision. If you appeal the Tax Court's decision to a U.S. Court of Appeals, the collection period will begin 60 days after the appeal is filed, unless a bond is posted.

The Starling-Flock Law Office Is Here for You

At the Starling-Flock Law Office, we focus on Federal Tax Services and Federal Tax Representation and we are here to listen to you and help you navigate the legal system.

Contact Us Today

The Starling-Flock Law Office is committed to answering your questions about Federal Tax Services and Federal Tax Representation law issues in all 50 states.

We offer a free consultation and we'll gladly discuss your case with you at your convenience. Contact us today to schedule an appointment.

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