An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
15. How to Resolve IRS Collections Isues
Now we want to move on to the meat of the presentation, which is how to resolve IRS collections issues.
There are a series of remedies that are prescribed within the IRM and that the IRS will accept as an acceptable means of resolving a taxpayer’s delinquent account. Those measures are as follows:
The first measure is the IRS will always allow you to pay them in full. They will take a cheque for the full amount anytime you want to give it to them. They are happy to do so.
The next remedy is if a taxpayer needs more time to pay, they will give you a 120-day extension to pay. It’s just very nice of them.
The next method of resolving – although not prescribed by the IRM – is to run. You can run from the IRS. You can flee. You can evade their collection statute. You cannot keep any cash in the bank and say, “IRS, come after me.”
That is not something we’d advised for multiple reasons which we’ll get into a minute. But we do want to leave it on the table as an option so that your client is aware that that is a possibility in certain cases.
The next is Currently Non-Collectible Status. We talked about CNC status a little earlier. It’s where the IRS determines that there’s a financial hardship and that they’re not going to pursue the account. That’s also really important as well.
A CNC status is a temporary break from collections. We get into a little more detail later but it is a way for the taxpayer who has fallen on difficult times that they’re unemployed to receive temporary relief from the IRS until they’re back on their feet.
The IRS also offers payment plans. There are multiple types of payment plans, which we will go over as well.
The IRS offers in compromise. An offer in compromise is essentially a tax settlement. It is an exchange for a lump sum cash offer or split out payments. The IRS will forgive tax liability in exchange for the promise of future compliance.
Taxpayer offers some cash. They just tell the IRS that they’re going to be compliant for five years – which means filing and paying all taxes on time – and the IRS will forgive their past tax liability.
The final method of resolution is bankruptcy. We generally do not advise bankruptcy for variety of reasons, which we’ll also cover. But at the same point, bankruptcy is an option that’s on the table and that is also important to know as well.