Sam Brotman, JD, LLM, MBA July 2, 2020 12 min read

The IRS Collections Process in a Nutshell


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

What is the IRS collection process? People not paying their taxes is a very serious issue for the IRS. It is something that we as tax practitioners call the tax gap. The IRS collection process is an increasingly serious step of collection measures designed to get people in compliance and make sure they stay in compliance.

One of the reasons people complain about penalties and interest so often is because it is a deterrent that the IRS uses to make sure that you do not owe money on your taxes. When you see liabilities rise by 25, 30, 40 percent or, even higher, it is going to make you think twice about not paying your taxes. 

The IRS does not just issue penalties and interest; they start out by taking increasingly serious actions such as garnishing your wages, levying your bank accounts, putting liens against your property and a whole host of other measures designed to force you back into compliance.

Usually, the IRS will give you a lot of latitude and opportunity to resolve your tax issue within reason. One of the favorite sayings of the revenue officers that we deal with is that the IRS is not a bank. It is not giving you a loan on your taxes to pay for other things. 

Therefore, what ends up happening is a disconnect between the IRS calling the terms of its loan so to speak, and between what most people consider ordinary and reasonable living expenses.

Most of the job that we do as a tax firm in defending clients against the IRS collection process, is translating their circumstances in terms that the IRS will respect and understand. As you move through the process, the more you step out in front of it and mitigate your liability will go a long way to avoiding some of those more serious actions. 

Actions the IRS Can Take Against You

The IRS uses the carrot and stick to get people into compliance and to get liabilities resolved. Generally, they use the stick more than the carrot. What happens is the more time that passes from when the IRS is aware that you owe a liability, the more significant and strong the actions they take against you are. 

Again, they want you in compliance. They want you to pay your taxes, they want you to get on a payment plan if you cannot afford to pay your taxes in full, and they are not going to tolerate you owing money to the government.

As time passes, the IRS will take increasingly serious action against you. They start with letters. You start getting letters — correspondence of increasing urgency. The IRS generally goes after low-hanging fruit. They start seizing bank accounts and wages and they can take a portion of your social security. 

They are also looking for assets that they can quickly find and liquidate in order to satisfy the liability. If they cannot locate those assets, and depending on how much liability you owe, then they may take stronger action against you. 

They may send a field agent to your house. They may summon you and bring you in for an interview. They may demand the production of financial information or other documents that they may review to get their money back.

What happens is the longer that IRS liabilities go unresolved, the more serious the government is and the harder and faster they move against you. 

From a planning perspective, It is really important that as soon as you become aware of an IRS liability, or as soon as you are in a position to take care of a tax problem, that you do so as quickly as possible. Taking swift and prompt action will mitigate most IRS problems very quickly.

Strategies for Dealing With IRS Collection Cases

What is the strategy for dealing with IRS collection cases? Our firm’s strategy is to throw the IRS completely out the window and just start with the client. We take a client’s situation — and every situation is different — but we always focus on what the end goal is. 

You may owe the IRS a sum of money and you may not be able to pay that sum of money but the really important thing is not that you pay the money, but that your life moves forward and that you are able to meet your personal, professional and financial goals. 

We start with an understanding of what the goal is and then we work the solution into that. That solution can look like a lot of things. It can look like a payment plan, it can look like a hardship, it can look like a tax settlement, but the long or the short of it is, let us work on hitting the goal based on what you want, not based on what the government wants.

The way that we approach IRS collection issues and the strategy behind that is to start by looking in a situation, figuring out where we want to be, figuring out the fastest way to get there and then navigating the government through that hurdle.

Options If You Cannot Pay the IRS

Number one, the keyword is options. You have lots of options. The options that we recommend are ones that get you into compliance. You can, number one, pay the liability in full. If you do not have enough money to pay the liability in full, you can ask them for an extension of say, four or five months before the IRS is going to request your payment in full.

If you still cannot pay the liability, then you should enter into a payment plan or propose a settlement. A payment plan is exactly what it sounds like, you make a series of payments to the IRS over time. 

A settlement is what is more commonly known as an offer in compromise, where if you have a liability and you know that you will never ever be able to pay it, you could offer the IRS a reduced amount. In exchange for that amount, they will forgive your liability.

If, for whatever reason those do not work for you, you can enter into a hardship which is currently called non-collectible status. You have to document evidence of your hardship and provide the IRS with financial information and then they will put a reprieve on you from collecting the liability either in the short-term or in the long-term. Generally, non-collectable status can last anywhere from six months to about two years.

The last option that you have is bankruptcy, but bankruptcy is something that I consider generally to be a nuclear option because bankruptcy has a lot of impact on you outside of your tax situation. If the only thing you owe is tax debt, or maybe some small consumer debts and credit cards, generally working through the administrative process is much more favorable to bankruptcy. 

That is the lay of the land, you can pay it, you can request more time to pay it, you can put yourself on a payment plan, you can settle the liability, you can ask for a hardship, or you can go into bankruptcy. Those are your six options for dealing with liabilities that you cannot afford to pay.


Penalties and Interest

If you are trying to work things out with the IRS will they waive penalties and interest? We get asked that question a lot. We will have a client who owes $50,000, $100,000 or $1,000,000 in liability and does not object to the actual tax liability. 

But, most of them object to the interest and penalties that get tacked on to their liability, which can add tens or hundreds of thousands or even more than a million dollars to the liability.

Interest on tax liabilities is defined and set by a statutory rate. Unless there is some sort of serious error, you are probably not going to get the interest waived. One of the revenue officers that I work with frequently says the interest is what the interest is. 

That is true, and the flip side of that is the federal interest rate for tax liabilities is generally speaking, pretty low. The penalty portion of the liability usually is pretty stiff; however, penalties can get waived under certain circumstances.

What you need to waive a penalty is something called reasonable cause. A reasonable cause is essentially a good-faith excuse for why the tax debt was incurred.

If you believe that you have reasonable cause and there is a genuine reason why this debt was incurred and not paid on time, then I would encourage you to talk to a tax attorney like myself or a qualified representative to determine whether or not you have reasonable cause and what the proper course of action is for getting the IRS to waive those penalties.

"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."

-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist

Last updated: September 24, 2022

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law



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