If it isn't bad enough owing back taxes and receiving notices of the ever-growing interest and penalties but, to make things worse, the Internal Revenue Service (IRS) has collection methods that can wreak havoc on your daily life.
In the arsenal of collection methods exploited by the IRS are Federal tax liens, a levy on bank account(s), wage garnishment, use of collection agencies, and passport restriction.
A Federal tax lien is a legal claim against property, current and future. The lien is created by law and attaches to your property including your home and car. There is a notice of Federal tax lien which is public information, and it alerts your creditors about your tax debt. It is filed with local or state authorities such as the County Recorder of Deeds or the Secretary of State. It may also be reported by consumer credit reporting agencies. This can have a negative effect on your credit rating making it difficult to obtain a loan or credit card. It can also be viewed unfavorably by potential employers, landlords, and others who use this public information.
A levy is a legal seizure that takes your property (such as your house or car) or your rights to property such as your income, bank account, retirement account or Social Security payments to satisfy the tax debt. A levy on your bank account is served once and the seizure of funds will be up to the amount of the debt. After a levy is issued the bank will hold the available funds for 21 days. If after 21 days, the issue is not resolved the bank will send the IRS the money including any interest earned during that time. If the debt is not fully satisfied another levy can then be issued. A garnishment to your wages will be served once and will stay in effect until the tax debt is fully paid.
The IRS is required to notify the U.S. State Department of taxpayers certified as owing a seriously delinquent tax debt. The U. S. State Department generally will not issue or renew, and may revoke, your passport after the notification. Seriously delinquent tax debt is a balance of more than $51,000 including penalties and interest.
Before any of these collection methods happen, the IRS mails notices of back taxes and the next step they plan to take to collect these taxes. Ignoring the notices will not make the taxes or collection effort go away. Much of the IRS collection process is automated and escalates every 30 days. There are ways to stop the debt collection even if you cannot pay in full. Payment options were covered in detail in our past article, Options for Taxpayers Who Can't Pay the Taxes They Owe. If you want to seek professional help, at ADKF we have a Department of Tax Controversy dedicated to helping resolve federal and state tax issues. Please call us at (210) 829-1300 to learn more about our services or to schedule a consultation.