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The IRS Collection Process

What happens if you don't file your taxes or you can't pay off your full tax bill by the deadline? Late payment of your taxes will increase your overall tax bill with interest and penalties until the amount is paid off in full. If you don't pay your taxes or make payment arrangements with the Internal Revenue Service (IRS), your tax debt may go to collections.

The IRS will continue to find ways to collect the money, even if it means seizing your property or garnishing your wages. The following provides an overview of the IRS collection process. For legal advice about your tax situation, and to get help negotiating with the IRS to clear up your tax debt, contact a tax attorney.

If You Didn't Pay Your Taxes On Time

Your taxes are due on the tax due date. For most taxpayers, the tax date is April 15th, or the following business day if it falls on a weekend. If your taxes are still not paid by the due date, you may get a tax bill from the IRS explaining the amount of your balance due, required payment in full, and any penalties and interest that have been added to your tax bill.

If you have the money available, you can pay the bill over the phone or by sending a check or money order to the IRS. If you don't have the money, you will continue to accrue interest and penalties.

Late Payment Penalties and Interest

Any taxes that are not paid by April 15 will begin assessing interest and penalty fees. Interest is assessed at the federal short-term rate plus 3%. The late payment penalty is ½ of 1% for each month the bill remains due. If you never filed your taxes, there is an additional failure-to-file penalty of 5% of the tax owed for each month, up to 25%.

If you cannot pay the balance in full, you should pay as much as you can. The unpaid balance is subject to interest which is compounded daily, along with monthly late payment penalties. The more you can pay now, the less you will owe in interest and penalties.

In some cases, you might also consider making a credit card payment towards your taxes or getting a loan. Make sure to check the interest rate for your credit card or what the bank charges to see if it is lower than the combination of interest and penalties imposed by the Internal Revenue Code.

Contact the IRS For Payment Options

Many taxpayers who owe money never think of contacting the IRS. However, the IRS can be very helpful if you are unable to pay your balance in full and might offer payment options. You may be able to make monthly installments to pay off your tax debt through an individual payment plan.

Making an installment agreement can also help you reduce the late payment penalties. With an IRS installment agreement, the failure-to-pay penalty is cut in half. If you continue to make payments under the installment agreement, you will remain in good standing with the IRS and they will not pursue any further collections actions.

If you will not be able to repay your tax debt and even an installment plan will not work, you may be able to negotiate for an offer in compromise (OIC). An OIC will allow the taxpayer to settle their tax debt for less than the total amount owed. An offer in compromise is evaluated on a case-by-case basis. The IRS will not likely grant an OIC unless you cooperate with providing information about your:

  • Ability to pay
  • Income
  • Expenses
  • Asset equity

You can have a tax attorney help you with the offer in compromise process to negotiate a tax settlement based on what you can afford. To prepare for an OIC negotiation, gather information about your income, savings, living expenses, rent or mortgage payments, and other expenses.

Tax Debt Going to Collections

If you do not respond to your tax bill and do not contact the IRS to make payment arrangements, they will begin collections. The IRS can take a number of collection actions to collect your taxes, including:

Notice of Tax Lien

tax lien is a type of claim on your property. Like a mechanic's lien or lender's lien, the government can establish an interest in your property as a creditor. This may include your home, vehicles, boats, and bank accounts. Any property you acquire after the lien is issued will also be subject to government interest. When there is a lien on your property, you cannot freely sell or transfer the property. A lien is a way to make you pay your tax bill before they will release the lien.

Notice of Tax Levy

If you have still not paid your tax bill, the IRS may issue a Notice of Levy. With a levy, the IRS can seize your property, including vehicles, bank accounts, real estate, Social Security benefits, and retirement income. Even if you do not have a lot of property or money in any accounts, the IRS can garnish your wages.

Refund Offset

If you owe money for a past tax year and are due a refund for the current tax year, the IRS could take the refund and future tax refunds to offset the past due amount. If you have state income tax refunds coming, those may also be levied by the IRS to pay down your tax debt.

Still Have Questions About the IRS Collections Process? Talk to an Attorney Today

When it comes to tax debt and collections, it can be tempting to ignore the IRS notices and hope it all goes away. But you should take action now to reduce your tax liability and avoid a tax lien or levy that could take your property. A legal tax professional can walk you through the process and help you decide which options may be best for you and how to clear up your tax debt. Reach out to an experienced tax attorney in your area today and get some peace of mind.

You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help

Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.

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Next Steps

Contact a qualified tax attorney to help you navigate your federal and/or state tax issues.

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