Introduction
When the Internal Revenue Service (IRS) sends you to collections, it is a serious matter that can have significant consequences on your financial well-being. This article will explore what happens if the IRS sends you to collections and the potential impact it can have on your life.
Understanding IRS Collections
What is IRS collections? IRS collections is the process by which the IRS attempts to collect unpaid taxes from individuals or businesses. When you owe taxes and fail to pay them, the IRS can take various actions to collect the debt, including sending you to collections.
How does the IRS determine if you owe taxes? The IRS typically determines if you owe taxes through a process known as tax assessment. This involves reviewing your tax return and comparing it to the information they have received from third parties, such as employers and financial institutions. If the IRS finds discrepancies or unpaid taxes, they will send you a notice of deficiency or a tax bill.
Consequences of IRS Collections
Increased interest and penalties: When the IRS sends you to collections, the amount you owe can increase significantly due to interest and penalties. The IRS charges interest on the unpaid tax debt, which accrues daily. Additionally, they can impose penalties for late payment, failure to file, or accuracy-related issues.
Levies and liens: If you continue to ignore the IRS’s attempts to collect the debt, they may resort to more aggressive measures such as placing a levy on your bank accounts or wages. A levy allows the IRS to seize funds from your accounts or garnish your wages to satisfy the outstanding tax debt. They can also file a federal tax lien, which is a claim against your property, making it difficult for you to sell or refinance assets.
Damage to credit score: When the IRS sends you to collections, it can negatively impact your credit score. The IRS may file a Notice of Federal Tax Lien, which can stay on your credit report for up to seven years. This can make it challenging to obtain credit or loans in the future and may result in higher interest rates if you are approved.
Options for Resolving IRS Collections
Payment plans: One option for resolving IRS collections is to set up a payment plan. The IRS offers various installment agreement options, allowing you to pay off the debt over time. Depending on your financial situation, you may qualify for a short-term payment plan or a long-term installment agreement.
Offer in Compromise: In some cases, the IRS may accept an Offer in Compromise (OIC) to settle your tax debt for less than the full amount owed. However, OICs are generally only accepted if you can demonstrate that you are unable to pay the full debt or if paying the full amount would create a financial hardship.
Seek professional assistance: Dealing with IRS collections can be complex and overwhelming. It may be beneficial to seek professional assistance from a tax attorney or a certified public accountant (CPA) who specializes in tax resolution. These professionals can help you navigate the process, negotiate with the IRS on your behalf, and explore potential options for resolving the debt.
Conclusion
When the IRS sends you to collections, it is crucial to take the matter seriously. Ignoring the issue can lead to increased debt, levies, liens, and damage to your credit score. However, there are options available for resolving IRS collections, such as payment plans or an Offer in Compromise. Seeking professional assistance can also be beneficial in navigating this complex process and finding the best solution for your situation.
References
– IRS: www.irs.gov
– Investopedia: www.investopedia.com
– NerdWallet: www.nerdwallet.com
