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Posted On February 08, 2019
Tax Time Is Here: Avoid IRS Collections with These Tips

Tax Time Is Here: Avoid IRS Collections with These Tips

A debt to the IRS does not go away, but it may be possible to delay collection efforts when a taxpayer is unable to fully pay his or her federal taxes in full. However, if taxpayers do not immediately take advantage of the options available to them and ignore their tax debt, a federal tax lien will be automatically filed.

What Happens when a Tax Lien is Filed?

A federal tax lien is a legal claim to collect taxes against a delinquent taxpayer’s property. It is put into action when a taxpayer fails to fully pay what he or she owes within 10 days after the IRS has sent its first notice of taxes owed along with a demand for payment. The IRS may also file a “Notice of Federal Tax Lien” in public records. This notice serves as a public notice to the taxpayer’s creditors that the IRS is making a claim against the taxpayer’s property. But it can also cause harm to the taxpayer’s credit rating and credit report. Normally, the IRS will not release its lien until the taxpayer has paid the entire amount of taxes due, along with any interest, penalties or other fees that have been assessed.

Options Delinquent Taxpayers Can Pursue

Delinquent taxpayers can avoid damage to their credit and the unpleasantness of dealing with a federal tax lien. A taxpayer should immediately take action when he or she cannot pay the full balance due on his or her federal income taxes or receiving a notice that taxes are due. The taxpayer should pay as much as of the tax debt as possible to minimize accrued daily interest and monthly penalties.

If the balance cannot be paid in full, the IRS offers options, including a monthly installment plan or a direct debit installment agreement. It is important to note that interest and penalties will continue to accrue during repayment.

Collection efforts may also be delayed if the IRS determines the taxpayer cannot pay the debt because of financial hardship or is a member of the Armed Forces. This includes if the taxpayer is in bankruptcy.

A taxpayer may be able to make an offer in compromise (OIC) to the IRS if he or she meets the eligibility requirements. If the IRS accepts the offer of the reduced amount, it will resolve the taxpayer’s tax debt upon payment.