What happens when IRS sends you to collections?
When the Internal Revenue Service (IRS) sends you to collections, it’s a serious situation that requires immediate attention. The IRS has the authority to take various actions to recover unpaid taxes, and being sent to collections is one of the most severe measures they can take. Understanding what happens during this process is crucial for individuals and businesses facing this situation.
Understanding the Collections Process
The collections process begins when the IRS determines that you owe taxes and have not paid them. Initially, the IRS will send you a series of notices, starting with a CP14 or CP90, which outlines the amount owed and the payment options available. If you fail to respond or pay the amount due, the IRS will continue to send notices, escalating in severity.
Receiving a Final Notice of Intent to Levy
If you still do not take action, the IRS will send a Final Notice of Intent to Levy, typically a CP91 or CP92. This notice serves as a warning that the IRS intends to seize your assets or garnish your wages to recover the debt. It’s important to note that this notice provides you with a final opportunity to resolve the debt before the IRS takes action.
Wage Garnishment
One of the most common actions the IRS takes when you’re sent to collections is wage garnishment. This means that a portion of your wages will be withheld by your employer and sent directly to the IRS to satisfy the tax debt. The amount garnished can be as high as 75% of your disposable income, depending on your financial situation and other obligations.
Asset Seizure
In addition to wage garnishment, the IRS can seize your assets to recover the debt. This can include bank accounts, real estate, vehicles, and other property. The IRS will issue a levy notice, which gives you a limited time to object or appeal the seizure. If you fail to do so, the IRS will proceed with the seizure and sell the assets to pay off the debt.
Offer in Compromise
If you’re unable to pay the full amount owed, the IRS may be willing to negotiate an Offer in Compromise (OIC). This is an agreement between you and the IRS to settle the debt for less than the full amount. To qualify for an OIC, you must demonstrate that you cannot pay the full amount and that the IRS would not be able to collect the full amount within a reasonable period.
Financial Counseling and Payment Plans
The IRS offers financial counseling and payment plans to help individuals and businesses manage their tax debt. These options can provide relief from wage garnishment and asset seizure, allowing you to pay off the debt over time. It’s important to work with a tax professional or financial advisor to determine the best course of action for your situation.
Conclusion
Being sent to collections by the IRS is a serious matter that requires prompt attention. Understanding the collections process, including wage garnishment, asset seizure, and the possibility of an Offer in Compromise, can help you navigate this challenging situation. It’s crucial to seek professional advice and take action to resolve your tax debt as soon as possible to avoid further consequences.
