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IRS Tax Collection

If taxpayers do not voluntarily pay the taxes they owe, and do not enter into one of the three alternative collection tools, then the IRS can take collection action against a taxpayer.  This may include placing liens on property a taxpayer owns, garnishing paychecks, seizing tax refunds, seizing bank accounts, and even seizing Social Security checks.  It is crucial that taxpayers make arrangements to resolve their tax debts.

Lien versus Levy

A lien is a security interest in another person's property.  If a creditor places a lien on property (which could be a home, a car, or any physical asset of value), paperwork is publicly filed that provides for the amount of the debt and to whom it is owed.  The person who owns the property still possesses the property, uses the property, and owns the property.  However, with a lien, the property owner is prevented from transferring or selling the property without resolution of the lien.  A levy is when a creditor comes and collects on the debt by seizing the debtors property.  This may be in the form of seizing and subsequently selling a house, car, or other asset.  A levy on wages is usually referred to as a garnishment.  The government can also seize bank accounts and other financial assets.

Collection Due Process Hearings & Equivalent

The Internal Revenue Code requires the IRS to give a taxpayer a Collection Due Process hearing when it intends to place a lien or levy assets.  The IRS must give the taxpayer written notice and provide the taxpayer with 30 days notice to request such a hearing.  The request is made by submitting a Form 12153.  At the hearing, a taxpayer can request that the IRS accept one of the three tools for collection alternatives, which are either an installment agreement, currently not collectible status, or offer in compromise.  If the IRS decides against the taxpayer, then they may usually appeal to U.S. Tax Court.

The IRS's definition of economic hardship

The Internal Revenue Code bars the IRS from levying on a taxpayer if it would create an economic hardship.  If you are getting a Collection Due Process Hearing, you can argue economic hardship.  Even if you are not entitled to a CDP Hearing, you can argue against a levy action based on economic hardship, but you may need the assistance of the Taxpayer Advocate Service.

Taxpayer Advocate Service

The Taxpayer Advocate Service was created in 1999 after decades of IRS abuses.  It is in a position to assist taxpayer with specific problems with the IRS.  If you feel the IRS has been abusing its powers, abusing you (verbally), or is not following its own procedures, you can request assistance by submitting a Form 911 and submitting it to your state's local office of the Taxpayer Advocate Service.

IRS Private Collection Agency Program

Legislation enacted by Congress in 2015 authorizes designated contractors to collect, on the government’s behalf, unpaid tax debts. Usually, these are unpaid individual tax obligations that are not currently being worked by IRS collection employees and often were assessed by the tax agency several years ago.

 

How the New Program Works

The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA). First, the IRS will send a letter to the taxpayer and their tax representative informing them that their account is being assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.

Only four private groups are participating in this program:

  • CBE Group of Cedar Falls, Iowa;
  • Conserve of Fairport, N.Y.;
  • Performant of Livermore, Calif.; and
  • Pioneer of Horseheads, N.Y.
The taxpayer’s account will only be assigned to one of these agencies, never to all four. No other private group is authorized to represent the IRS.

Once the IRS letter is sent, the designated private firm will send its own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the collection firm’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.

The private collectors will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights.

The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, visit IRS.gov/Payments.

Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy. To learn more about the new private debt collection program, visit the Private Debt Collection page on IRS.gov.

Watch out for Phone Scams

The IRS reminds taxpayers to be on the lookout for scammers posing as private collection firms. The IRS will be watching for these schemes as the collection program begins, and this effort will include working with partners in the tax community and law enforcement about emerging scams.

People should remember that these private collection firms will only be calling about a tax debt the person has had – and has been aware of – for years and had been contacted about previously in the past by the IRS.

If taxpayers are unsure if they have an unpaid tax debt from a previous year – which is what the private collection firms will handle – they can go to IRS.gov and check their account balance: www.irs.gov/balancedue. If the account balance says zero, that means nothing is due, and you typically wouldn't’t be getting a contact from the IRS or the private firm.

Whether or not a taxpayer’s account is assigned to a private collection agency, the IRS warns taxpayers to beware of scammers pretending to be from the IRS or an IRS contractor. Here are some things the scammers often do but the IRS and its contractors will never do.

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes, and if a case is assigned to a PCA, both the IRS and the authorized collection agency will send the taxpayer a letter. Payment will always be to the United States Treasury.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

Don’t Wait to Hear from the IRS or a Contractor

As always, the IRS encourages taxpayers behind on their tax obligations to come forward and either pay what they owe or set up a suitable payment plan. This means there’s no need to wait for a phone call or letter from the IRS or any of its contractors.

Frequently, taxpayers qualify for one of several payment options, and taking advantage of them is often easier than many people think. These include the following:

  • Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed. Alternatively, taxpayers can request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.
  • Some struggling taxpayers may qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

 


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