While the IRS will initiate the process of collections almost immediately after a tax return with a balance is filed, its level of aggression varies widely from case to case. Yet, the IRS has a ten-year statute of limitations to collect any federal tax debt. This statute of limitations begins from when the tax is assessed and can be extended due to additional tax assessments or bankruptcy or other legal action. Additionally, the IRS has three years to audit any given tax return. However, if the IRS deems a return fraudulent there is no such statute of limitations for audit or collections, effectively the statute of limitations becomes infinite. Again, not all cases are viewed equally within the eyes of the IRS. Businesses are typically on a much shorter leash than are individuals.
The IRS will begin the process of collections with a simple, “Notice and Demand” for payment letter. These letters are typically issued about 30 days after a delinquent tax return has been filed. If the IRS receives no response to its initial request for payment within the timeframe allotted in the letter, it will proceed with increasingly aggressive correspondence. After the timeframe to respond has elapsed the IRS will issue a CP504 notice, “Intent to Seize Property or Rights to Property.” This is the IRS’s preliminary threat to enforce collections of a debt. If it again receives no response, it will elevate its aggression and file a federal lien and/or provide a “Final Notice of Intent to Levy.” After a Final Notice of Intent to Levy has been issued a taxpayer has 30 days to respond before the IRS can legally take this action. After 30 days has elapsed and the taxpayer has not taken corrective action or requested an appeals hearing, the IRS can levy at any time. This entire process can take as little as three months, but can take much longer.
For individual taxpayers, most of these notices will be computer-generated and most cases that are below $250,000 in total tax debt will remain with the IRS’s Automated Collections Department (ACS). This means to speak with any IRS personnel a taxpayer will need to contact ACS at their toll-free line and bear through long hold times to discuss case specific options for resolution with IRS representatives standing by in a call center. The IRS typically will not contact an individual taxpayer directly or by phone unless they are flagged for audit or the liability exceeds the $250,000 benchmark. There are certainly exceptions to this for prolonged periods of delinquency or for “pyramiding” taxpayers.
For most businesses and particularly with regard to employment tax, the IRS will elevate the level of collections much more rapidly. Any employment tax liability that exceeds $25,000 will require a field agent to be assigned for resolution of the account. Employment taxes are considered to be held in a trust by the employer and are used to pay employee’s income tax as well as funding both Social Security and Medicare. Because of this, the IRS pursues this tax type much more aggressively than other tax types. Due to tremendous shortfalls in financing for these entitlement programs, the IRS is ever increasing its effort to connect with business owners who fall short on their employment tax obligations as quickly as possible.