An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
3. What Causes a Balance Due
One of the first things I want to talk about is what causes a balance due. Balance due is tax liability that is owed to the government. There are four basic ways that balance dues occur.
The first is you file tax return showing a liability that’s owed to the government that is not paid. If a tax payer files a return, they owe $10,000. They don’t include the check with that. That will create a balance due within the IRS system.
The second way that balance dues are formed is through the matching program that the IRS has. When the tax payer files a tax return not showing a tax liability but there are either errors or omissions on that tax return, then the IRS will make a correction.
Oftentimes, the issue of the correction through which is called the CP2000 notice, tax payer will file a return. They’ll get a nice letter in the mail saying, “Hey, we noticed you left off some income. You didn’t report the 1099 that you had. You stated a credit that we don’t believe you’re entitled to.” Any number of things can cause a CP2000. If the tax payer doesn’t respond or challenge that CP2000, then the IRS will make the adjustment and the balance due will become final.
The third way to have a balance due is through an audit. Tax payer submits a return, the IRS takes a look at it and then decides they want to audit the return.
I will go a little bit into audits so that’s outside the scope of this presentation. But all these can happen in three ways. It can happen through correspondence, through the mail. It can happen at the IRS’s office where the tax payer is called in. Or the third most serious types of audits, what we all field audit is where the IRS will go out into a tax payer’s business or their home or preferably in their attorney’s office and conduct the audit that way.