How do I stop IRS Collections?
Before the IRS can levy – legally seize – your property (bank accounts, wages, cars, homes, etc.), they must send a notice of intent to levy and a final notice. Some examples of a notice of intent can be Form 501, Form 503 and Form 504. Common examples of a final notice are Letter 1058, CP90, and LT11.
If you receive a final notice letter from the IRS, you will also receive details on your right to a hearing. If you disagree with the actions being taken by the IRS, you have 30 days to request a hearing.
Collection Due Process (CDP) Appeal hearing
A CDP hearing determines if the IRS is taking proper action in the collections process. Importantly, this is done by a separate group within the IRS – it moves a case from collections to appeals. Once a CDP hearing has been requested all collection activity will stop.
When a case is in Appeals, the taxpayer can negotiate alternative settlements with the IRS – such as an installment plan, Offer in Compromise (OIC), uncollectable status, etc.
If you request a CDP hearing within 30 days and disagree with the Appeals decision, you have the right to go to Tax Court. This is a judicial process – in other words, moving from negotiating the case with the IRS directly to using an independent judge to weigh the evidence and make a decision.
(If you are past the 30-day deadline, you can request an “equivalent hearing”, however, you will not be able to challenge the Appeals decision and to go Tax Court. The IRS will often still stop the collections process while an equivalent hearing is pending).
To request a CDP hearing or equivalent hearing, complete Form 12153:
Payment in Full
This is when you pay the full amount owed to the IRS in one payment. This should be used whenever possible - even if it means cutting expenses for a while - it is the most straight-forward route.
Make a payment to the IRS here: https://www.irs.gov/payments
Installment Plan (or Payment Plan)
This is when you agree to pay the full amount but break it up into smaller payments over a set period of time. The time frame is typically 84 months or less. It’s the next best option if you don’t have the total amount right now - you will still need to make interest payments, but the failure to pay penalty will be reduced.
Apply for an Installment Agreement with Form 9465 (https://www.irs.gov/pub/irs-pdf/f9465.pdf). IRS collections will stop will once the application is in effect. The IRS cannot seize anything while this is pending, and you are living up to the terms of the agreement.
Offer in Compromise (OIC)
This is when you can show the IRS you do not have funds to pay the total amount and offer to pay a lower amount. This can be a win-win scenario as it can allow the IRS to collect something versus nothing and may be a much more viable path for the taxpayer.
The first request from the IRS is payment for the total amount – if you can’t pay, the IRS will say, “show us you can’t pay”. So, you will typically need to provide income and expenses for the last 3 months. This will be Form 433-A (for wage earners) or Form 433-B (for corporations, partnerships and LLCs). They will be looking to make sure there is nowhere else to get the money from to pay off the debt.
Submit an OIC with 656-B (https://www.irs.gov/pub/irs-pdf/f656b.pdf). IRS collection activity stops when an OIC application is received.
Currently Not Collectible (CNC)
This is when you can show you cannot make any payment. Your income and expenses will be scrutinized closely here too. The IRS can look to see if the levy will cause “financial hardship” – this is defined by not being able to pay basic living expenses.
For example, if Form 433 shows you bring in $3,000 of income each month, you have $2,800 of living expenses each month, and the IRS is taking $1,000 a month, that will create a very difficult financial situation.
If the IRS agrees you cannot make a payment, they will temporarily suspend the levy and collections will stop. They will re-evaluate if the financial situation improves going forward. Note that interest will continue to accrue.
I’m overwhelmed, I’m not a tax person, what do I do right now?
It’s critical to act to resolve your case as quickly as possible. Do not ignore the final notice. Do not delay in responding. This will not just go away by not dealing with it.
Make sure you know your rights and are taking the best action possible for you and your family.
If you need help assessing your options and/or navigating next steps, Safe Harbor is here and ready to help if you need it. We have attorneys, CPAs and business owners – this combination allows us to both help resolve your immediate tax situation and represent you to the IRS. We’re standing by, please feel free to contact us below.