Q: What can the IRS do to collect my debt?

A: Before the IRS takes any measures to collect your tax debt, you'll first receive a telephone call or a letter explaining that you owe money and offering you a chance to settle your debt amicably. There are many means to settling your debt, and if you need help determining how best to deal with the IRS, you can consult a tax professional and he or she can help you navigate the payment channels.

However, if you choose not to pay your tax debt, the IRS will begin the process of collecting. The IRS isn't like other collection agencies, and they will employ some pretty powerful collection methods. Unlike a typical collection agency, the IRS doesn't have to file a civil lawsuit against you and receive a judgment from a court in order to start the collection process. All they have to do is alert you that you owe money. If you don't comply with their terms, the collection will begin. And the IRS is the most powerful collection agency in the world!

In most cases, the IRS will employ collection methods like liens and levies. A Federal Tax Lien is a claim on your property. For example, if you own a home, the IRS can put a lien on that home. The lien appears on the title, and you'll have to deal with it if you ever sell your home. The lien ensures that the IRS gets paid first, even before your mortgage company! A levy is even more serious, since it doesn't kick in when and if you sell a property; it's a seizure of your assets. The IRS can garnish your wages, seize money out of your bank accounts, and even seize your property. They can even take money from a trust fund. Remember these collection methods if you ever get a letter from the IRS saying that you owe money. It's worth it to try to work something out with the IRS, or they'll take what they need to satisfy your debt.

What are the penalties for not paying my IRS debt?

A: The first penalty that you'll face is interest. From the due date of the return until the date of payment, you'll be charged the federal short-term rate plus three percent, compounded daily. The federal short-term rate is determined every three months, so your interest rate may change every three months until you pay. This makes it difficult to calculate exactly how much interest you're paying.

If you filed on time, but you didn't pay on time, you'll have an additional late payment penalty that will equal one half of one percent of the tax owed for each month that the money remains unpaid after the date that it was due, but not to exceed twenty-five percent. If you fail to pay for several months, the IRS will increase the percentage to a full percent, rather than one half.

If you also failed to file on time, there are additional penalties. You'll be charged five percent for each month that your return was late, up to twenty-five percent. If you filed your return over sixty days late, you will be required to pay a penalty of 100 percent of the tax due, or $100, whichever is less. As you can see, it's worth it to file and pay on time if you're at all able. Be aware, though, that if you have a good reason for not paying on time, such as a serious illness or a job loss, you can usually have these penalties waived. Consult a tax professional who can appeal to the IRS on your behalf.

• Am I eligible for a currently not collectible (CNC) status?
• Can I arrange for a payment plan with the IRS?
• What can I do to get help with my tax debt?
• What exactly is an offer in compromise?
• What is a penalty abatement?
• What is spousal tax relief?

• Can I Settle My Tax Debt With the IRS?
• How to Reduce Your Income Taxes - Knowledge is the Key
• How to Request a Partial Payment Plan
• How to Set Up an IRS Payment Plan
• How to Settle 'Currently Not Collectible'
• What is an Offer in Compromise?

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