The Automated Collection System (ACS) is the collection method most often implemented by the IRS. Millions of Americans nationwide have experienced or are currently experiencing this system. Often the first notification most taxpayers have that they have developed tax debt, the ACS is a largely computerized system and sends almost all of the notices and letters regarding the individual’s progress in the resolution of their tax debt.

Though the system relies heavily on computerization, it does entail a number of call centers, staffed with tax collectors who possess an in-depth knowledge base of collection practices. With call centers in cities, such as Seattle, Philadelphia and Buffalo, the automated collection system is spread across the US, and communicates with the vast majority of taxpayers who have a tax liability.

When an individual representing the IRS calls you, it is highly advised to respond honestly, completely, and candidly to his/her questions. They are focused on receiving full payment for tax debt, including the original unpaid tax, penalties assessed, and interest accrued. The ACS officials are given a number of tools to accomplish that goal and they are trained on how to fully implement those tools to resolve tax debt issues.

An ACS professional can garnish wages, place bank levies and tax liens. They are more likely to use any one of these methods to collect if they believe you are being dishonest, so the individual being assessed should not attempt to lie, circumvent questions or minimize the importance of the contact.

The Internal Revenue Service charges IRS Tax Debt penalties and interest for failing to submit payment or file a tax return by the appropriate due date. While these charges are constructed to ensure proper and prompt payment and submission of documentation, they can add a substantial amount of debt onto the taxpayer’s initial liability, oftentimes up to 50%.

Depending on a taxpayer’s financial situation, these charges can be unreasonable if a taxpayer acts promptly but is simply unable to fulfill their tax liability. If the taxpayer can demonstrate that the penalties and interest accrued by their IRS Tax Debt are unreasonable, the IRS may abate these additional charges, meaning, the charges may be reduced, terminated, or simply taken off and reduce tax debt.

The process by which a taxpayer may prevent tax penalties and interest, entitled, Reasonable Cause Relief, is an option for taxpayers who can show that something occurred, outside of their control, causing them to be unable to meet their tax obligations. Furthermore, taxpayers must provide evidence that they took reasonable steps to rectify the problem but still could not meet their obligations.

Under normal circumstances, it is difficult to prevent tax penalties via Reasonable Cause Relief. In addition to providing a strong case in defense of their prudence, taxpayers must complete the following requirements before they can qualify: 1) a request for abatement must be made (submitting Form 843 with a written statement, or submitting a verbal request); 2) paying the entire liability, with penalties and interest is recommended (this is for simplicity’s sake, as additional penalties and interest may accrue while the petition is being considered, entailing additional petitions for abatement).

After the request is filed, an IRS Appeals Officer, who proceeds to assess the taxpayer’s case, usually contacting the individual by phone or fax to verify or expand on the information provided with the original request.

Whenever a taxpayer has a back tax problem, they must make sure that they deal with it right away. The first IRS program that many people go to is the Offer in Compromise program. But considering that approximately 85% of taxpayers with back tax issues do not qualify for an offer in compromise, negotiating an installment agreement may be the next best thing.

The installment agreement process is much easier to complete than an offer in compromise. The installment agreement allows the IRS to set a monthly payment plan with the taxpayer that is determined by examining the taxpayer’s liability and comparing that to how much they can afford to pay on a monthly basis.

Installment payments must be paid timely and to the proper address. Don’t fall behind on your installment payments, as this is an agreement between you and the IRS. If you don’t fulfill your end of the agreement the IRS will instigate collection procedures again. It will be more challenging to negotiate an agreement the next time.

Just make sure that before you initiate an agreement you make sure that you are current on all income tax filings. The IRS will certainly make this a condition of the agreement and you won’t have much of a choice in the matter.

By aggressively negotiating with the IRS and working diligently, most taxpayers with back tax issues can reach an installment agreement. The goal is to make sure that you get an agreement that works within your financial budget.

Before an IRS Tax levy is placed on wages, bank accounts, tax refunds, etc., a Notice of Intent to Levy will be sent to the taxpayer, along with the individual’s rights to appeal the levy. If an individual does not respond in time to negotiate an alternate means of collection through any other IRS tax resolution strategy, such as seeking an Offer in Compromise, filing for Currently Not Collectible status, etc., the levy will be assessed.

The levy will then continue until the individual can accomplish one of the following. The easiest way to release tax levies is to pay the full tax liability, including interest and penalties. However, not all individuals have the luxury of deciding on the previous option, and must pursue other methods. Entering into an Installment Agreement with the IRS is one option, which entails the individual agreeing to pay the full liability in smaller payments over a prolonged period. It should be noted, however, that some Installment Agreements do not cause the IRS to release tax levies. Alternatively, an individual may file for Currently Not Collectible status after the levy has been issued, meaning that the IRS agrees that the levy is causing severe economic hardship. And finally, one may submit documentation to prove that, should the IRS release tax levies, the IRS could better collect on the tax liability.

In addition to actions an individual may take to fulfill or stop an irs tax levy, there are some circumstances that will see the levy released. For instance, if the statute of limitations expired prior to the serving of the levy, and the IRS is informed of this fact, then the levy will be dropped. Secondly, should the value of property being levied be greater than the tax liability, and releasing the levy on a part of the property could occur without affecting the ability to collect from the liability, then the levy will be released. This last circumstance is easiest to see in levies on bank accounts, from which the appropriate funds may be taken without continued seizure of the account.

The Federal Payment Levy Program (FPLP) allows for certain Social Security (SS) benefits to be subject to an IRS tax levy. In fact, all benefits described in the Social Security Act, Title II, may be levied, which includes, Survivors, Disability Insurance, and Federal Old-Age Benefits. To pay a tax liability, a 15% IRS tax levy may be assessed on any or all of these payments.

The FPLP is not restricted by the amount of SS Benefits an individual is left with, after taxation. This is due to the fact that the FPLP secures payment on tax liability, which is different from the stipulations of the 1996 Debt Collection Improvement Act, which holds $750 of any individual’s benefits as off-limits to satisfy debts, excluding tax debts. Because a Federal tax levy of this nature satisfies a tax debt, some individuals may be left with less than $750 per month.

The good news is, the FPLP excludes a number of Social Security Benefits, as well, such as those paid to children and lump sum death benefits, as well as those for taxpayers who were age 101 at the turn of the millennium. In addition, Supplemental Security Income payments and those with certain withholdings for SS debts are out of the FPLP’s danger, as well.

Prior to placing a levy on SS benefits, the IRS will send a number of notices, informing the taxpayer of the forthcoming levy and rights to appeal. One among these is the Final Notice of Intent to Levy. Afterward, if the taxpayer takes no action, then an additional notice, Final Notice Before Levy on SS Benefits, will be sent. 30 days after the date on the latter notice, a 15% levy will be placed on the taxpayer’s Social Security Benefits.

Levies and liens are often confused. While a lien is merely a security for tax debt, a levy, on the other hand, is the process by which the asset is seized and sold to reconcile tax debt.

An IRS tax levy can be assessed after:

(1) The IRS sends a Notice and Demand for Payment;
(2) The taxpayer fails to pay off the tax debt;
(3) The IRS sends the Final Notice of Intent (left at the home, work, last known address, or served in person); and
(4) The IRS sends Notice of Your Right to a Hearing.

In the event that the IRS intends to levy an asset of the taxpayer’s, the taxpayer may request an IRS manager to review his/her case or a hearing, by filing for Collection Due Process with the Office of Appeals. Any filing must transpire sooner than 30 days after the Notice.

After an IRS tax levy has begun, it will discontinue only after one of the following:
(1) The tax liability is fully paid;
(2) the taxpayer pursues tax resolution with the IRS, resulting in the release of the levy;
(3) The Statute of Limitations associated with the tax debt expires (usually 10 years after the last liability was accrued).

In the event an IRS tax levy is placed on the taxpayers bank account, the bank is legally obligated to put on hold all current deposits, up to the amount of the tax liability. This is to allow attempts at resolution to take place, either through appeal or an IRS program for tax resolution. At this time, the owner of the account may claim that some of the money withheld must be used for living expenses, such as housing, transportation, etc., in which case the IRS may release some of the money. 21 days later, if the tax liability has not been addressed, the bank sends the withheld money to the IRS.

Often there are circumstances that arise when a taxpayer has accumulated a substantial tax liability that clearly exceeds any ability to pay in a lump sum. In this situation, the taxpayer should consider hiring an Offer in Compromise attorney to handle the negotiations with the IRS.

The IRS applies the same collection standards utilized in installment agreements to offers in compromises. They will allocate an amount for clothing, food, housing related costs, vehicle transportation, and medical or dental costs. They will also consider any legal cash commitments like student loans, alimony and child support. Ultimately, based on this analysis, the IRS determines whether it is possible to grant relief under an offer in compromise.

Most offers in compromise are denied as the IRS recently stated that over 83% of the offers are rejected. The two main reasons that rejection occurs is because the documentation is inaccurate or incomplete or the taxpayer earns in excess of the required allowance. Your offer in compromise attorney will make sure that your filing is accurate and complete.

Upon submission of the OIC, the IRS must verify that the offer can be processed. The offer goes through a screening process to determine if the taxpayer or taxable entity has: (1) paid the required application fee; (2) ensured that all delinquent tax returns have been filed; (3) not instigated a bankruptcy court proceeding; and (4) not been issued an audit notification.

Hiring an offer in compromise attorney can help you improve the chance that your offer will get accepted. At a minimum they can review your situation and provide you valuable information that will allow you to make an informed decision.