Question

A client comes to your office with a Demand for Payment for a tax that has been assessed and the taxpayer agree he owes. What 10 things that your client could expect to happen during the collection process?

Answer 1

If you don't pay your tax in full when you file your tax return, you'll receive a bill for the amount you owe. This bill starts the collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time or period for collection expires.

The first notice you receive will be a letter that explains the balance due and demands payment in full. It will include the amount of the tax, plus any penalties and interest accrued on your unpaid balance from the date the tax was due.

The unpaid balance is subject to interest that compounds daily and a monthly late payment penalty. It's in your best interest to pay your tax liability in full as soon as you can to minimize the penalty and interest charges. You may want to investigate and consider other methods of financing full payment of your taxes, such as obtaining a cash advance on your credit card or getting a bank loan. The rate and any applicable fees your credit card company or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

If you're not able to pay your balance in full immediately, the IRS may be able to offer you a monthly installment agreement. In some cases, you can establish an installment agreement by using the Online Payment Agreement Application (OPA) or you may complete Form 9465, Installment Agreement Request and mail it in with your bill. You may also request an installment agreement over the phone by calling the phone number listed on your balance due notice. There's a user fee to set up a monthly installment agreement. For low-income taxpayers, the user fee is reduced and possibly waived or reimbursed if certain conditions apply.

Direct debit installment agreements offer a lower user fee than other installment agreements and help you to avoid defaulting on your agreement by allowing timely payments automatically. The user fee is waived for low-income taxpayers that agree to make electronic payments through a debit instrument by entering into a direct debit installment agreement. To enter into a direct debit installment agreement and have the payment directly debited from your bank account, complete lines 13a and 13b of Form 9465. Interest and late payment penalties will continue to accrue while you make installment payments.

When a lien is filed it should not come as a complete surprise. The IRS (and some other state taxing authorities) follow the process below before filing a tax lien on a taxpayer’s property:

• Assess a tax amount owed through the taxpayer filing a tax return or the taxing authority filing a substitute return
• A tax bill is sent to the taxpayer’s last known address which demands payment
• Taxpayer does not pay the tax bill owed in allowed time

After those three conditions are filled the IRS may file a Notice of Federal Tax Lien. This notice will give alert to other creditors that the government has claim to the taxpayer’s property.