The Basics of IRS Collection

Most people have some level of fear of interacting with the IRS. No one wants to owe the IRS and have to pay off tax debt with interest and penalties. The long telephone waits, the confusion, it is an unpleasant experience. Here are the basics of how the IRS collects tax, to help allay some of that fear.

Know that the IRS is handling millions of taxpayers at any time. There are millions of tax returns filed yearly, by individuals, corporations, partnerships, trusts, estates, the list is long. Millions of individuals and businesses owe tax. According to the IRS Data Book, in fiscal year 2024, the IRS collected $120.2 billion in unpaid assessments on returns filed with additional tax due, netting $77.6 billion after credit transfers.  Unless you have been contacted already by the IRS, you are waiting in what is colloquially called “the queue”. Queue is defined as “a waiting line especially of persons or vehicles”. It can also be used as a verb; you queue at the bank teller.

The queue is shorthand for a complicated system of assigning priority to balance due accounts. Balance due simply means you owe for some tax period. It is sort of triage for IRS debt. There are many variables of the queue, and it is too complex to explain completely. For individuals, smaller balance dues will be assigned to ACS, the Automated Collection Service, which is essentially mail collection.

The IRS has the best way to collect: they can offset your tax refund against what you owe. Example: you owe $3,000 for 2023 and you’ve been ignoring those IRS letters until you file your 2024 return, requesting a $5,000 refund. The IRS will offset that refund by what you owe and refund you the difference, $2,000. The IRS also collects for other government liabilities through TOP, the Treasury Offset Program. Through TOP the IRS can collect for state and federal liabilities, like child support or student loans. Since the refund offset is an effective passive collection strategy, the IRS may do nothing other than sending you a yearly bill if you owe smaller amounts and just wait to offset a future refund.

For larger amounts, in time the balance due will be assigned to a Revenue Officer for collection. Revenue Officers are IRS employees whose main job is to collect tax. There are currently about 2,300 nationwide. Their main tools are the summons, the levy and seizure. Summonses are request for information from you, your bank, etc. Levies are a formal taking of your assets by the IRS, usually of money. Seizures are taking of hard assets, like a house. Fortunately, seizures of property (other than cash through levies) are rare; only 71 nationwide for 2024.

The Revenue Officer tries to get paid the easiest way possible. Normally, if you are cooperative, the IRS will offer you an installment agreement. But his may not be an option if the queue kicks you out to an RO in year 9 of the 10-year collection period. It may be impossible to pay the liability off over a year by then. You may end up having to liquidate assets. There are two prerequisites to obtaining an installment agreement: first, that you are current in filing your tax returns, and second, that you are making estimated tax payments, or have proper wage withholding. Additionally, any liquid assets will be required to be turned over prior to granting the installment agreement.

What happens if you literally cannot pay anything? The IRS has a status they can put you in called CNC, Currently Not Collectible. This status doesn’t require you to pay anything but will be reviewed annually to make sure you still qualify for it.

Like everything else in life that is unpleasant, paying attention to it and being proactive is the better course of action. Ignoring problems doesn’t make them go away. For tax debt, ignoring the problem means interest and decreased opportunities to pay the liability off the way you wish due to the shorter collection time remaining. We have years of tax expertise at Brager Tax Law Group. Please contact us to help you with your audit or collection tax problems.