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Originally Published: Mar 15, 2024
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Originally Published: Mar 15, 2024 Last Updated: May 15, 2024 11 min read
Woman looking worried while looking at her phone with 1040 Tax form in the background
Eddie Lee / Money; Getty Images

The Internal Revenue Service was fairly lenient with past-due tax bills during the pandemic, but collection efforts are now back in full force.

The agency is ramping up efforts to collect overdue taxes after many debt-collection activities were paused during the worst of the COVID-19 crisis. In March 2020, the IRS temporarily halted some debt collection efforts and later expanded the pause in February 2022 to include a suspension of collections letters, including notices of property seizure.

"The IRS is gradually resuming sending out reminder collection notices and letters that were paused during the pandemic," the agency stated in a notice.

You may receive one if you owed back taxes before the tax year 2022.

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While the dialed-back enforcement of debt collections was at least partially intended to provide taxpayer relief, the IRS also had a major bandwidth issue. The agency was previously dealing with a major backlog of pandemic-era tax returns.

Then came a cash infusion to the IRS from the Inflation Reduction Act. Now that the agency has started receiving portions of this funding, which is set to be dispersed over a 10-year period, the IRS has been able to implement new technology to speed through the returns, restart collections efforts and even roll out a test of its own free tax-filing software.

Now, the IRS is primed to resume normal debt collection efforts in earnest.

What is the IRS debt collection process?

While you may not have received notices about your past-due tax bills during the pandemic, National Taxpayer Advocate Erin Collins warned in a blog post that you shouldn't assume the IRS has forgotten about your debt.

“The IRS does remember those outstanding balances,” she wrote, “and as long as the balance goes unpaid, interest and applicable penalties continue to accrue.”

As the IRS resumes collecting back taxes, the agency says it will first send you a "special reminder letter" called an LT38 that lets you know normal debt-collection procedures are back in effect. The letter should also display your balance and provide information on how to pay (or seek assistance).

Because collections notices were paused for so long, the IRS says that failure-to-pay penalties for tax years 2020 and 2021 will be waived for millions of taxpayers. Still, the underlying balance is due.

After you receive the special reminder, the normal sequence of letters will follow if you don't pay. You can expect a CP-14 notice, aka a balance-due letter, that requests payment within 21 days.

Following that, the IRS may send up to three additional letters reminding you of your balance (CP-501, CP-503 and CP-504).

The final notice, CP-504, warns that if you don’t pay your past-due balance immediately, the IRS can seize your property, income tax refunds, wages and bank accounts.

In cases with a high balance due, a physical IRS revenue officer may also get involved. Last summer, the IRS said it ended unannounced, in-person visits from the IRS. But an officer may still reach out to request an in-person visit, which could be at your home, business or local IRS office.

(Note: These officers have always been unarmed, and they will not threaten you with arrest or demand payment by card or wire transfer. Review the IRS’s tax scams resources if you believe the person contacting you is an imposter.)

What to do if you owe the IRS and can’t pay

If you don’t pay your taxes by the due date, you could get hit with some nasty penalties — plus interest that compounds daily. The failure to pay penalty is 0.5% of the unpaid tax balance for each month it remains unpaid, up to a maximum of 25%. Additional penalties apply if you also failed to file your tax return.

The IRS is generally willing to work with you — and even reduce penalties — so long as you reach out to the agency in a timely manner with a reasonable explanation (and the issue wasn’t due to “willful neglect” or fraud).

“The absolute worst thing taxpayers can do would be to ignore these balance due notices or any other IRS letters and notices,” Collins previously wrote.

The longer you wait, the higher the penalties rack up. And even if your penalties are removed, you may be on the hook for interest — which is especially expensive these days given the uptick in interest rates. Ultimately, the IRS can seize your property — including your car, boat or real estate — if you do not comply.

If you’re unable to make any payments toward your balance due to financial hardship, you may be able to temporarily delay collections by being deemed “not collectible" by the IRS. “Being currently not collectible does not mean the debt goes away,” the IRS website explains. “It means the IRS has determined you cannot afford to pay the debt at this time.”

To make your case, you’ll need to contact the IRS at 800-829-1040 or by calling the phone number on your bill or collections letter(s). Have your financial information on hand.

If you've verified your identity through ID.me, you can also visit the IRS website to see what you owe and apply for a different type of payment plan.

Short-term payment plan

A free 180-day repayment plan is available if you owe the IRS less than $100,000 in combined tax, penalties and interest. You can apply online for this type of plan.

Long-term payment plan

Setting up a long-term payment plan will likely cost you between $31 and $130 depending on your payment method. You can apply online if you owe $50,000 or less in combined tax, penalties and interest. If your tax bill is more than that, you will need to apply manually using form 9465. This type of plan is also called an installment agreement.

Offer in compromise

The offer in compromise is an application to settle your tax debt for less than you owe, mainly because of financial hardship. The process is lengthy, and application fees typically start at $205 plus an initial payment of your tax bill.

If your payment plan or settlement request is rejected or if you disagree with other debt collections activity you can also fight the collections process with an appeal, which will typically stop the IRS from collecting the debt until the appeal is settled.

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What are the consequences of not paying the IRS?

Ultimately, not paying the IRS the taxes you owe is incredibly consequential.

In addition to the steep fees and penalties mentioned above, the IRS can file a lien — a legal claim — to almost all of your current and future property after you neglect or refuse to pay your taxes. That includes your house, car or other property — as well your financial accounts and many types of government benefits (including Social Security payments).

When the IRS files a lien aka a Notice of Federal Tax Lien, your debt becomes public, alerting your creditors that the government has a right to your property. Technically, liens don’t automatically appear on your credit report. So your credit score may not change — but creditors can access this information, and a lien will likely hurt your chances when applying for new credit.

Before the IRS seizes (aka levies) your property, it will first send you a tax bill and several notices under standard collections procedures, and you will have a right to a legal hearing at least 30 days beforehand.

In serious cases, an IRS revenue officer may get involved and request in-person meetings. The IRS might also begin contacting neighbors, relatives, employers or banks about your situation. If the debt and penalties exceed $51,000, the IRS can notify the U.S. State Department of your tax debt, and the department may not issue or renew — and may even revoke — your passport.

How to pay the IRS after debt collection

The best way to get a hold of the IRS and pay your debt is by following the instructions on the official mail from the agency.

Typically the letter(s) will list your tax liability, a due date and other information about setting up alternative payments or disputing the amount.

If you aren’t able to pay the bill in full, the IRS says you should pay as much as you can first. In-person, online and telephone payment options via cash, debit and credit card are available. After you’ve paid as much as you can, you should set up a short- or long-term payment plan or a payment in compromise (as outlined above) to avoid further escalation of your debt.

Sometimes, the IRS assigns your case to a private collection agency. Before it does that, the IRS will alert you in writing of the agency it assigned your account to as well as giving you a 10-digit code that you will need to verify with the collection agency before setting up your tax payments. The collection agency must also send a separate letter confirming the account transfer.

The IRS typically only uses third-party agencies for older cases — or when the agency simply lacks resources to keep in contact with you directly.

Keep in mind that while this story focuses on federal tax debt, states are no different. If you're behind on paying state taxes, reach out to the taxation or revenue department — though each state has its own policies and procedures, you may find them easier to work with than the IRS.

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