Tax Debt Collection Avoidance
Contents
Avoiding Tax Debt Collection: What You Need to Know
Dealing with tax debt can be overwhelming. The letters from the IRS, the threatening phone calls from collectors, the fear of having your bank accounts or wages garnished — it’s enough to make anyone feel anxious and defeated. But there are ways to take control of the situation and protect yourself.
This article will walk you through some key strategies for avoiding aggressive tax debt collection so you can resolve your tax issues on your own terms. We’ll cover topics like setting up payment plans, filing for currently not collectible status, understanding your rights in dealing with collectors, and more. My goal is to empower you with knowledge so you can handle tax debt wisely.
First Steps When You Owe Back Taxes
If you get a notice from the IRS saying you owe back taxes, the first thing to do is try to understand why. Compare the notice to your past returns and make sure it’s accurate. If you made a mistake or left something out by accident, you may be able to fix it by filing an amended return. This can reduce or even eliminate the amount due.
If you can’t pay the full amount right away, take action before it snowballs. Options include:
- Setting up an IRS payment plan to pay over time
- Submitting an IRS Offer in Compromise to settle for less than you owe
- Requesting to be declared Currently Not Collectible if you truly can’t pay
The IRS wants to work with you on resolving tax debt. Ignoring it gives them cause to take aggressive collection actions like wage garnishment down the road.
Setting Up an IRS Payment Plan
One of the best ways to avoid aggressive collection is by setting up an IRS payment plan, also called an installment agreement. This allows you to pay what you owe over 6 years or less through monthly payments.
The IRS offers payment plans online through their Online Payment Agreement tool. You can apply as long as you owe less than $50,000 in combined tax, penalties and interest. The setup process is simple and you’ll know right away if you qualify and what your monthly payment would be.
For example, if you owe $5,000 total, the monthly payment could be around $100. This reasonable payment could keep the IRS satisfied and prevent them from taking collection action.
If you owe over $50,000 or need a payment plan longer than 6 years, you’ll need to fill out IRS Form 9465 and mail it in. The IRS will review your request and let you know if it’s approved.
What if I Can’t Afford the Payment Amount?
If the proposed monthly payment is still too high for your budget, you can submit Form 9465 with a lower counteroffer amount. Select the option for “I Cannot Pay the Full Amount Now” and explain your situation. The IRS may negotiate a more affordable payment plan in cases of financial hardship.
Watch Out for Defaulting
It’s important to stick to your payment plan consistently. If you default, the IRS can revert to aggressive collection tactics like wage garnishment. This is why it’s crucial to set payments you know you can maintain.
If your financial situation changes later on, you can submit an updated Form 9465 to modify your payment amount. The IRS wants you to succeed on the payment plan, so keep them updated on difficulties so you can adjust the terms.
Requesting Currently Not Collectible Status
If you truly can’t afford any payment at all, you can request to be declared Currently Not Collectible (CNC) by the IRS. This puts a hold on their collection efforts while your financial situation improves.
To request CNC status, you’ll need to fill out IRS Form 433-F and submit proof of your income, expenses and inability to pay. This can include documents like pay stubs, bank statements, bills, etc.
If approved, the IRS will temporarily delay collection action. Interest and penalties continue accruing, but they cannot garnish your wages or levy your bank account. This gives you time to get back on your feet.
CNC status is not permanent, however. The IRS will review your finances periodically to determine if you can start making payments. So keep records that demonstrate your ongoing hardship if you want to stay in CNC status.
Other Options if You Can’t Pay
Some other alternatives if you truly can’t pay your tax debt include:
- Offer in Compromise: Settling your tax debt for less than the full amount owed. Hardship criteria applies.
- Non-Collectible Status: The IRS formally writes off your account as uncollectible after 10 years.
- Bankruptcy: Tax debt may be discharged through Chapter 7 or 13 bankruptcy in some cases.
These options have specific requirements and are not guaranteed, but may be worth exploring if you have low income and assets.
Avoiding Aggressive Collection Tactics
Once your tax debt goes into the IRS collection process, here are some tactics they may use and how to handle them:
Tax Liens
The IRS can place a lien on your property, allowing them to seize it if the debt remains unpaid. Thankfully, liens don’t happen right away in most cases.
You’ll receive a Notice of Federal Tax Lien giving you 30 days to resolve the debt or request a hearing. Act promptly and don’t ignore this notice if you want to avoid the actual lien being filed.
Levies
A levy allows the IRS to seize your assets or garnish wages. This can be devastating, so take it seriously if you receive a Notice of Intent to Levy.
You have 30 days to resolve the debt or request a Collection Due Process hearing to appeal the levy. Be aware that interest and penalties continue accumulating during appeals.
Wage Garnishment
The IRS can contact your employer demanding they garnish a percentage of your wages (up to 25%) until the tax debt is paid. You’ll receive a Final Notice of Intent to Levy giving 30 days to act.
Respond immediately and consider setting up a payment plan, as this is often enough to halt garnishment. If that fails, you may qualify to reduce the garnished amount based on financial hardship.
Bank Levies
A bank levy allows the IRS to seize funds from your bank accounts. Again, you’ll receive an advance Notice of Levy giving you time to resolve the debt.
Act fast, as the levy can freeze your account. You may be able to release some funds by proving financial hardship. But in most cases, setting up a payment plan is the best way to avoid the levy.
Dealing With Tax Debt Collectors
If the IRS is unable to collect from you directly, they may assign your account to a private collection agency. This does not mean you have no rights or options.
Verify The Debt
Many collection scams pretend you owe taxes when you don’t. Always verify a debt collector is legitimate by calling the IRS before paying anything.
Get the name of the collection agency and the IRS employee who assigned your account. Call them to confirm the collector is authorized to handle your debt.
Report Any Abuse
Federal law protects you from harassment and deception by debt collectors. They cannot:
- Use threats or violence
- Call before 8 AM or after 9 PM
- Misrepresent the amount you owe
- Falsely claim to be law enforcement
- Contact you after requesting no further contact
Document any violations and report them to the IRS. You can also submit a complaint to the Federal Trade Commission.
Negotiate a Payment Plan
Private collectors want to recover what they can. Let them know you intend to pay but need affordable payments. Get any plan in writing before sending money.
If they refuse reasonable payment terms, you can have the account returned to the IRS by requesting this in writing.
Take Control of Your Tax Debt
Dealing with the IRS and tax debt collectors is stressful. But you have rights and options to resolve tax debt on your own terms.
Take control of your situation by acting quickly when you receive IRS notices. Set up a payment plan or request to pause collection if needed. And don’t tolerate any harassment or deception from collectors.
Managing tax debt is challenging, but the information in this article will help you handle it wisely. Know your rights and take advantage of programs like payment plans, offers in compromise and currently not collectible status. If you act promptly and make good faith efforts to address your tax issues, you can avoid the most aggressive collection tactics and take control of your debt.