If you have not paid your tax liability, the IRS and the NCDOR will begin sending you notices. These notices start the IRS and NCDOR enforced collection process.
If you ignore the notices, the IRS and NCDOR will become increasingly more insistent in their payment demands through enforced collection. The IRS and NCDOR collection processes can seriously disrupt your business and employment relationships and negatively impact your credit rating.
The experienced tax lawyers at Raleigh, North Carolina-based Murray Moyer, PLLC have in depth experience with IRS and NCDOR collection process practices and procedures.
Taxpayer Options to Stop Enforced Collection Process
Option 1: Payment in Full
The first and best option available to taxpayers is to simply pay the entire tax liability in full. Based on the amount of your tax liability, it may be wise to borrow funds, obtain a cash advance, or pay by credit card because the interest charged on these payment methods may be less than the interest and late payment penalties imposed by the tax laws.
Option 2: Request an Extension
If you cannot pay the entire tax liability in full, the IRS may be willing to defer payment. If you need extra time to access funds to pay the amount owed, the IRS may grant an extension.
Option 3: Currently Not Collectible
If your financial situation is such that paying anything will create a hardship, the IRS can place you in currently not collectible status. This will temporarily suspend collection activity against you. The amount you owe, however, will continue to accrue interest and penalties.
Option 4: Installment Agreement
If you cannot full pay your tax liabilities, but you can afford a limited monthly payment, you can request an installment agreement. There is a fee to set up an installment agreement, and interest penalties continue to accrue until the balance is paid in full. Payments under an installment agreement will include an interest charge computed on the unpaid balance.
Option 5: Offer in Compromise
If you have few assets and little prospect of generating sufficient income to pay the liability in full, you may be allowed to settle the tax liability for less than the full amount owed through an offer in compromise.
Option 6: Bankruptcy
Another alternative for a taxpayer facing IRS collection is to file a petition in bankruptcy. Certain taxpayers may be eligible to discharge income taxes in bankruptcy if they meet certain rules, restrictions, and limitations set forth in the Bankruptcy Code.
IRS Enforced Collection Alternatives
The IRS may take the following actions to collect the tax:
- File a Notice of Federal Tax Lien (“NFTL”) – A federal tax lien is a legal claim to your property. The federal lien arises when the tax liability is assessed and continues until the amount assessed is paid in full or becomes unenforceable. A federal lien will hurt your credit and make it more difficult for you to borrow money to pay your tax debts.
- Levy, Seizure and Garnishment – The IRS is permitted by statute to levy (seize) your home, cars, or other property and, if necessary, sell the property at a public auction to generate proceeds to satisfy the unpaid tax liability. The IRS may garnish your wages, bank accounts, retirement income, or Social Security benefits. You have the opportunity to request a due process hearing prior to the IRS seizing your assets.
- Offsetting tax refunds – Finally, the IRS will apply current and future federal and state refunds until you have paid down the balance on your unpaid tax liabilities.