Facing the IRS’ broad tax-collection powers: Do not go it alone

The agency has extremely broad power to seize property and money to satisfy delinquent federal taxes.

Everyone goes through challenging financial circumstances. Unfortunately, one issue that often rears its ugly head at those times is a federal tax assessment. When a taxpayer is struggling to make ends meet, the receipt of an unmanageable tax bill, whether expected or unexpected, can seem like the last straw.

It is important that a taxpayer seek legal advice when taxes are due and the resources are not there to pay, when the IRS notifies him or her of a new tax assessment such as because of a mistake found on a return or if the taxpayer receives notice of audit.

Speak to an experienced tax attorney and do not ignore the IRS just because of the inability to pay. The agency has broad collection power under the law, including the legal right to place a tax lien on a delinquent taxpayer's property that is enforceable by any of several methods.

In many situations, the matter of past due taxes does not need to lead to the IRS attempting to seize assets or money of the taxpayer to cover the bill. Alternatives and strategies may include:

  • Setting up an installment plan for monthly payments of tax, interest and penalties
  • Negotiating an offer in compromise in which the IRS agrees to accept less money than the full amount due in exchange for forgiving the rest of the liability
  • Requesting a temporary delay of collection and a finding of "currently not collectible" when the taxpayer is unable to pay
  • Inquiring about special relief available to certain members of the U.S. military
  • Requesting a discharge of the lien from particular items of property
  • Requesting that the lien be subordinated (made junior) to other creditors
  • And more

Without a resolution, the IRS may take steps to collect delinquent taxes. The agency has the legal right to ask the taxpayer for detailed, personal information about employment, assets and accounts in preparation for collection action, such as by requiring that certain collection information forms be completed.

The IRS gets a federal tax lien on essentially all property and assets of a delinquent taxpayer, including federal and state tax refunds, future wages and later-acquired assets. The agency can publicly file a Notice of Federal Tax Lien, which may have a negative impact on the taxpayer's credit report.

The taxpayer's money and accounts may be levied or seized by the IRS. According to the agency's website, it may seize wages, retirement income, Social Security benefits and money in bank accounts. In addition, the IRS can seize real estate, vehicles and personal property and sell them to satisfy tax debt.

Even if a taxpayer gets to this point alone, it remains important to consult with an attorney about ways to stop the collection process. For example, the taxpayer could still attempt to negotiate an offer in compromise and during those negotiations, the IRS stops taking action to seize property. In addition, many IRS actions to collect may be appealable within the agency.

In narrower situations, the IRS may sue the taxpayer in federal court such as in a foreclosure suit on specific property of the taxpayer. Again, legal counsel is essential to help protect the taxpayer's rights and assets.

From his office in Southlake, attorney David Coffin of David Coffin PLLC represents individual and business taxpayers in IRS collection matters as well as in a wide variety of additional tax issues.