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Top 5 Ways the IRS Can Forcibly Collect Your Back Taxes

December 20, 2014  |   Tax Advice,Tax News   |   Tags: , ,  

Back taxes that remain unpaid after repeated reminders from the IRS can be collected through forcible collection actions. Initially, the IRS communicates with the debtor through notices. These notices are sent to request payment. If they are ignored or no satisfactory effort is made to resolve the back taxes, then the IRS can place a lien and then a levy on property, asset or property that is yours but is held by someone else.

irs collections methods

If you receive a notice regarding an assessed balance, it means that the IRS has discovered that you owe back taxes and will pursue collection efforts if you do not take action. That is why after receiving an IRS notice it’s critical to find a resolution. If resolution is not achieved in a timely fashion, the IRS may use the following five ways to forcibly collect what you owe:

1. Wage Garnishment

A common method the IRS uses to collect back taxes is to garnish a taxpayer’s wages. Under a wage garnishment, the IRS takes funds from each of the debtor’s paycheck. How much the IRS takes is dependent on how much is owed, and what allowable living expenses are taken into consideration for the individual.

When a wage garnishment is put into place, the IRS communicates with the debtor’s employer to inform them of the tax debt; the employer is instructed to transfer a specific amount to the IRS each week from the employee’s paycheck. The employer is legally required to carry out the instructions of the IRS.

2. Bank Levy

Another damaging way the IRS collects back taxes is with a bank levy. Under a bank levy, the IRS informs the taxpayer’s bank about the tax debt and asks them to transfer a specific amount to them. After a holding period of 21 days, during which any ownership issues can be settled, the bank transfers the funds to the IRS.

3.  Selling of Property

The IRS can sell a taxpayer’s property, such as a house, car, or boat, to collect back taxes. Before selling a property, the IRS is first required to place a lien on it. A Federal Tax Lien secures the government’s interest in any property held by the person in debt. Once a lien has been placed, the taxpayer cannot sell or rent the property, or take a loan on it without first paying the IRS. If no resolution action is taken after the placement of a lien, then the IRS can sell the property to satisfy back taxes.

4.  Garnishment of Social Security Benefits

Usually, the IRS will consider levying wages, property or assets to collect back taxes. Additionally, they can even garnish Social Security benefits. Other institutions such as banks cannot touch your Social Security benefits, but the government can. The IRS can take up to 15% from your Social Security check. The IRS cannot levy Social Security benefits paid to children and lump sum death benefits.

5. Levy on Retirement Accounts

Your retirement accounts are not beyond the reach of the IRS. To collect back taxes, they may intercept your retirement payments. The amount that the IRS removes from your retirement account(s) is determined by what you owe and what your local allowable living expenses are. The IRS’ goal is to take as much as possible to satisfy the debt without pushing you into a financial crisis.