How do the IRS and the courts look at a tax debt to make a decision about pursuing collection? If the IRS sends you a bill for a tax debt, you don’t have to pay it. But if you want to avoid it, the IRS will send you a bill every month until you pay it. If you don’t pay, the IRS has the power to take legal action.
First, the IRS can bring a case against you in federal court. But the IRS is pretty sure you’ll lose, so the odds of going to federal court are extremely low. Instead, the IRS most likely will send you a warning letter asking you to pay the debt. If you ignore that warning letter, the IRS will send you a more serious notice that says you’re in collection.
The IRS could be in the process of trying to collect the debt. It will send you a letter, with legal papers, threatening to take legal action against you if you don’t pay. The court has three alternatives if the IRS decides to sue you for the tax debt.
First, the court can order you to pay the debt, and take the IRS’ collection to get you to pay. The court can order this if the IRS doesn’t give you more time to pay. The court can also order you to do community service if the IRS has decided to go after the debt in federal court.
The court can also fine you if it’s convinced the IRS has the right to collect from you. You can ask the IRS to negotiate the tax debt with you in court. The IRS will have to negotiate if it thinks it’s going to lose in court. If it loses in court, the IRS may choose to not proceed any further. But the IRS can’t afford to let you off the hook.
The IRS will continue to pursue the debt. In return for your help, the IRS will agree to make some concession, or pay you a discount. The IRS will negotiate with you.
Knowing who you owe and how much Deciding how much you can pay Telling the IRS to stop bothering you The best way to get a handle on collections is to know the basic procedure. The collection agencies may change a little over time, but the basic procedure stays the same. This chapter explains the details about how the collection process works.
It also covers who collects what, how much you owe, how you pay it, and how you get the IRS to stop bothering you. You may find that someone you don’t even know collects money you owe. When collections are needed, the agency calls in the collection person who handles your account. In most cases, the person who collects from you is an employee of the company you owe money to.
The Collection Process People who work in collections and people who owe money to others are called collection agents. Most collection agents work for a collection agency. In this chapter, we explain the job of the collection agent and give you some tips on what you should do if collections are needed. If you want to work with the IRS directly, and if you’re owed back taxes or other penalties, Chapter 18 also has helpful information about dealing with the IRS.
The collection agent’s role When a debt needs to be collected, an agent is called in. The collection agent’s job is to get the money from you. The collection agent doesn’t always find the money himself. Rather, he finds people who have money, or at least enough of their own money to give to you. As the collection agent or some other agent of a collection agency, the collection agent must do some of the following: Collect the money from the person with money.
If you owe the IRS money, you pay it. (We give you some tips about doing so in Chapter 17.) * **Arrange for payments to be collected.** If you don’t pay the money you owe, your account may be transferred to another collection agency. You may then be contacted by a collection agent who may arrange to collect the money you owe.
If necessary, help the collection agency resolve any legal issues that may occur.For example, the agency may sue you, get a judgment against you, and force you to pay the money you owe. Make sure that your collection agency receives the money the agency is owed.** After the agent has the money you owe, he’s supposed to pay the collection agency’s fee.
Receive payment for the work the agency has done on your behalf. The collection agent receives a fee, which he’s supposed to pay to the collection agency. Keep you informed about the status of your case. If the case has any progress to report, the agent does so. If your case has been closed, the agent informs you. If you’re in an installment agreement, the agent informs you of any changes.
Not all collection agencies follow these steps. If your case isn’t progressing as planned, you may have problems paying the fees owed. You have the right to pay the agency yourself, pay someone else, or sue the collection agency in small claims court.
Appealing an IRS Collection Action If you feel that an IRS collection action against you isn’t accurate, you may want to appeal it. Unfortunately, an appeal isn’t free. The agent or collection agency (whichever you think has failed to do its job) usually files a lawsuit in small claims court. You have 30 days to respond.
You then have an additional 30 days in which to file your appeal with the small claims court. The court then sends you written notice of the court date, which is typically 20 days after the filing of the lawsuit. You must appeal to the court within 10 days of receiving the notice. The Appeals Process is outlined in the following sections.
In small claims court, you and the IRS or other collection agency face each other. A court reporter, a hearing officer, and the judge or magistrate preside over the meeting. If the court doesn’t have enough time to hold the appeal, it sends your case to another small claims court. You still have to pay filing fees and do some back-and-forth negotiating to win the case. If the IRS or other agency wins, you may appeal to the federal district court. After the court trial, you may appeal to the U.S. Court of Appeals.
Winning in the federal district court After your trial in small claims court, you may appeal to the federal district court. You have 30 days to file a notice of appeal. The court’s file is sent to the Appeals Division of the regional IRS office that handles your region. This filing usually takes 30 days, but you may be told that the delay is a result of bureaucratic confusion and that your appeal will be filed in another agency’s office.
The Appeals Division usually receives your notice and responds by informing you of the time period to file your appeal. ### Winning in the court of appeals After you receive a notice from the Appeals Division, you have 10 days to appeal to the court of appeals. An agent or collection agency usually files an appeal in small claims court, which sends it to the district court. (This appeal usually takes 20 to 30 days, but the government can take up to six months.)
The court of appeals is part of the federal court system. The Appeals Division files an appeal and sends a copy of the transcript of the small claims court trial to the judge. Usually, the judge sends back a short ruling within 30 days. If the judge decides that the IRS is right, the Appeals Division sends your case back to the small claims court. If the judge doesn’t rule in your favor, the Appeals Division sends the case back to you for another appeal. Appeals take time and cost a lot of money. If you have a small amount to dispute, a trial in small claims court is usually cheaper and faster than an appeal. If you lose your small claims court appeal, you can ask for another appeal in federal district court. This appeal also costs money and takes time.
Sorting Out Collections Agencies The IRS may be the first to contact you when it discovers that you owe money, but it can’t collect what it can’t get. You have several ways to get money out of debt: * Pay your bills on time. The easiest way to pay your bills is to pay them on time. (I discuss ways to find out whether you’re current in your bills in Chapter 3.) * Use a credit card responsibly. The IRS isn’t interested in your bad financial habits. It only wants to get what you owe. * Use your available resources to pay the IRS. If your available resources fall short, see the following sections. The credit-card rules don’t apply to taxes. A credit card can only reduce your ability to pay your debts, including your tax debt. No credit card can discharge your tax debt.
Disputing your tax debt with the IRS Before you try to resolve your tax debt with the IRS, you need to be on the right path. First, you have to follow the IRS’s rules for dealing with the IRS. If you fail to do so, you may not only lose the chance to settle your debt, but also may expose yourself to serious penalties.
Check the IRS’s forms The IRS has two sets of forms: Form 656-A for federal tax debt and Form 656 for state tax debt. The forms are long and comprehensive. Check the forms thoroughly before you sign or return them. If you have an outstanding federal tax lien, the IRS may use Decide which form to use The IRS determines which form is correct by determining whether you paid the tax and if you owe the tax. If you owe the tax, it can collect from you by placing a tax lien on your property.
For more details about tax debts’ resolution, call (888)489-4889 for a free consultation.