Things can happen. An unexpected medical bill, unpaid time away from work or other financial emergency is enough for most people to fall behind on their tax obligations to the IRS. Maybe you really meant to pay your tax bill, but somehow it got pushed aside when an emergency came up that wiped out your savings or other financial reserves earmarked for paying your taxes.
In some ways, the IRS collection process isn’t really that much different than credit card collections or medical collections. Even with that, it’s important to be aware of how the IRS goes about collecting past due taxes from taxpayers.
The IRS places a high priority on past due taxes and is intent on collecting all past due tax debt. If you’ve set aside your IRS collection notices out of fear or hoping the debt will somehow be written off, you could be in for a rude awakening: the IRS places older tax debt at the top of its list and will take action to recover that debt.
IRS debt can linger for years, depending on how much you owe them. You may end up facing years of collection activity, since the IRS makes it a priority to recover “old” tax debt. The IRS will continue to pursue you until the debt is paid off. Like credit card companies and hospitals, the IRS means business and wants the money that is owed to them.
You could be stuck making payments for years and living on a very lean budget while paying off your tax debt, including the balance due and any interest and penalties.
While it can seem like you’ll be forever saddled with IRS debt that will never go away, there is a legal time limit, or statute of limitations on IRS debt. Tax debt that is more than 10 years old is off-limits to them. If your tax debt is outside the statute of limitations, this could help you in deciding which course of action to take, or whether or not to take any action to pay off the debt.
When it comes to debt less than 10 years old, however, the IRS employs many of the same tactics used by credit card companies and hospitals: wage garnishments and levying assets. At the same time, there is one key difference: the IRS does not require a court order to do so. This will typically happen if you haven’t responded to any of the IRS’s correspondence regarding your tax debt.
If you want to avoid the nightmare of finding your bank accounts and other liquid assets frozen, or having a lien placed against your home and other assets, you must respond to any communication from the IRS. Failing to do so signals to the IRS that you have no intention of satisfying your tax obligation, and they will resort to stronger tactics such as wage garnishment or asset levy.
The IRS, like credit card companies and hospitals, takes debt seriously. They will prioritize unpaid debts; the older the tax debt, the more aggressive they are when it comes to collecting that debt. If you are tossing their notices in the trash out of fear or in hopes the debt will eventually be written off or forgiven, the IRS can and will initiate collection action against you.
Tomorrow: More about the IRS collection process.