If you owe the IRS thousands of dollars in back taxes, the first time you’re probably going to hear from this is in letters via certified mail. The first two letters you receive will outline how much you owe, and give you a time frame to pay off the debt or set up a payment plan.
If you’ve already gotten a few of these letters, and you chose to ignore them, you’re probably in for a world of trouble. Here's what to expect:
Tax Levy: Usually, when the IRS places a levy, they do it on your bank account. Your bank is notified to set aside all of the funds in your account for 21 days. During that time, you have to prove that the seizure will cause significant economic hardship. Proving is harder than it seems. You will need to show evidence such as eviction or utility notices.
Tax Lien: This is the IRS’ silent killer. When they use this form of collection, it’s usually not effective as immediately as a levy. But it can be much, much worse. When the IRS places a lien on your credit, they basically slap a large black spot on it. That means that you aren’t going to be able to do anything involving credit; getting a loan, refinancing a mortgage, etc. Plus, even if you get the lien removed, it can make it very hard to rebuild your credit from that state.
Wage Garnishment: This tactic goes straight to the source; your paycheck! The IRS looks at your filing status and the number of exemptions they believe you are allowed. Then, they decide how much money you are allowed to keep from your paycheck. Usually, the amount is not enough to pay all of your bills. You could be left with as little as $791! In some cases, they can even garnish the entire check!
Can They Really Do That? Absolutely. The IRS has legal rights to use any of the above collection tactics. And trust me, they’ll use them. The IRS didn’t become the strongest collection agency in the world by playing fair. They fight dirty, and will go to any extent to get their money back. The trick is, knowing how to avoid getting yourself in one of these situations.
What Can I do? The best way to avoid these attacks is to file on time, and contact the IRS about paying off your debt A.S.AP! When it comes to taxes, being proactive is crucial. But if you’re already in one of these collection states, time is of the essence. You need to speak with a reliable, knowledgeable tax professional as soon as possible. A seasoned tax professional will know just what it takes to fight back against the IRS and get your life back on track.