Tax CollectionIRS Collection Procedures
Robert McKenzie, Contributor
The IRS Collection Division attempts to collect delinquent taxes as inexpensively and rapidly as possible. To accomplish this task the IRS makes extensive use of computers. Only when automated methods have failed to collect a tax is the matter assigned to an individual for collection.
Four-Level System
To effectuate this policy the IRS utilizes a four-level system of collection. It begins its collection efforts on each account by generating computer notices from a Regional Compliance Center. If the efforts of the Compliance Center do not secure payment, the account is then assigned to the Automated Collection System (ACS). The Automated Collection System attempts to collect the tax liability by initiating telephone calls to the taxpayer and others. During the time that an account is assigned to Compliance Center and ACS, accounts may also be resolved by Collection Support Staff assigned to handle “walk-ins” in local IRS offices. If none of these levels of the system are successful in collecting the account, it is eventually assigned to a Revenue Officer for a field investigation. Obviously, it is much less expensive for the IRS to collect a tax by mailing a notice or placing a telephone call than it is to visit the taxpayer personally. For the taxpayer, however, personal negotiation is much more effective than dealing with an automated system.
Compliance Center
The IRS has ten Regional Compliance Centers which process all tax returns filed with the IRS. Compliance Centers are extensively automated. The information on each tax return filed is encoded into the IRS computer at a Compliance Center. That IRS computer system will determine if computational errors are contained on the return and issue notices regarding errors. The Compliance Center is also responsible for initiating notices to taxpayers to collect balances due on tax returns.
The IRS has ten Regional Compliance Centers which process all tax returns filed with the IRS. Compliance Centers are extensively automated. The information on each tax return filed is encoded into the IRS computer at a Compliance Center. That IRS computer system will determine if computational errors are contained on the return and issue notices regarding errors. The Compliance Center is also responsible for initiating notices to taxpayers to collect balances due on tax returns.
1040 Notice Procedure
Upon receipt of a tax return or other document showing a balance due, the following process takes place in the Internal Revenue Compliance Center. Within several weeks after receipt of the document, the information is placed on the computer system. That system will then initiate a series of notices. The first notice issued is a document titled “Request for Payment,” which informs the taxpayer that there is a balance due on the return, states the amount of tax, interest and penalties due, and requests payment within ten days. This is the notice statutorily required for the creation of a valid Federal Tax Lien. If the liability is for individual income taxes, and the liability is relatively small, the taxpayer will normally receive four subsequent notices before the IRS proceeds to take any administrative collection measures. If the liability is not paid after the initial notice, the taxpayer will receive a second notice, “Reminder,” Notice 501. The IRS will issue Notice 503, “Urgent, Immediate action is required “, five weeks after the first notice. The taxpayer will receive Notice 504, “Urgent, We intend to levy on certain assets. Please respond NOW,” in the mail five weeks after issuance of Notice 503 if payment is not made after that notice. Notice 504 is the nastiest of the IRS letters. If the taxpayer fails to pay after Notice 504 the matter will be referred for collection by the Automated Collection System (ACS). If ACS is unsuccessful in collecting or resolving the matter the IRS will then issue Letter 1058, “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING. PLEASE RESPOND IMMEDIATELY.” If the taxpayer exercises her appeal rights, collection will be held. If the taxpayer fails to appeal the IRS will levy after expiration of 30 days from the notice. One unusual convention of the IRS is that each notice will bear a date which falls on Monday.
Upon receipt of a tax return or other document showing a balance due, the following process takes place in the Internal Revenue Compliance Center. Within several weeks after receipt of the document, the information is placed on the computer system. That system will then initiate a series of notices. The first notice issued is a document titled “Request for Payment,” which informs the taxpayer that there is a balance due on the return, states the amount of tax, interest and penalties due, and requests payment within ten days. This is the notice statutorily required for the creation of a valid Federal Tax Lien. If the liability is for individual income taxes, and the liability is relatively small, the taxpayer will normally receive four subsequent notices before the IRS proceeds to take any administrative collection measures. If the liability is not paid after the initial notice, the taxpayer will receive a second notice, “Reminder,” Notice 501. The IRS will issue Notice 503, “Urgent, Immediate action is required “, five weeks after the first notice. The taxpayer will receive Notice 504, “Urgent, We intend to levy on certain assets. Please respond NOW,” in the mail five weeks after issuance of Notice 503 if payment is not made after that notice. Notice 504 is the nastiest of the IRS letters. If the taxpayer fails to pay after Notice 504 the matter will be referred for collection by the Automated Collection System (ACS). If ACS is unsuccessful in collecting or resolving the matter the IRS will then issue Letter 1058, “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING. PLEASE RESPOND IMMEDIATELY.” If the taxpayer exercises her appeal rights, collection will be held. If the taxpayer fails to appeal the IRS will levy after expiration of 30 days from the notice. One unusual convention of the IRS is that each notice will bear a date which falls on Monday.
Business Taxpayers
In the case of business taxes (either corporate income or withholding taxes), the IRS will send three notices prior to initiating enforcement measures. The total time from first notice to enforcement action is normally at least 16 weeks. The taxpayer will receive a first notice and a Notice 504 five weeks subsequent to the first notice. The account will then be referred to ACS or a Revenue Officer for issuance of Letter 1058 if the taxpayer fails to resolve the liability.
In the case of business taxes (either corporate income or withholding taxes), the IRS will send three notices prior to initiating enforcement measures. The total time from first notice to enforcement action is normally at least 16 weeks. The taxpayer will receive a first notice and a Notice 504 five weeks subsequent to the first notice. The account will then be referred to ACS or a Revenue Officer for issuance of Letter 1058 if the taxpayer fails to resolve the liability.
Notice of Levy
Correspondence With Compliance Center
Normally, it is ineffective to write to a Compliance Center. It may take some Compliance Center six weeks or more to process correspondence. For example, if your client receives a Notice 504 even though he paid the tax upon receipt of the Notice 503, a letter to the IRS will not stop assignment to ACS. The IRS will not process your letter for six weeks, yet the computer continues to automatically refer the matter to ACS on a set cycle.
Streamline Installment Agreements
A taxpayer may be able to secure a 60-month payment plan for 1040 liabilities of less than $25,000. The IRS Restructuring and Reform Act of 1998 requires the IRS to grant a payment plan to individual taxpayers who owe less than $10 thousand. A taxpayer may set up a streamlined online at the IRS website.
Telephone Collection Efforts
If an account cannot be collected by a Returns Processing Center by using the matter will then be transferred to a ACS for enforced collection measures or telephone collection efforts. Each ACS, including the Return Processing Center, has a computerized telephone collection system and is authorized to levy on bank accounts, wages and accounts receivable.
ACS has computerized sources of income or assets of the taxpayer, such as wages, bank accounts, certificates of deposit or accounts receivable, all of which can be seized administratively from the taxpayer, it will issue a Notice of Levy against the taxpayer’s assets approximately six weeks after the Letter 1058. If the ACS does not have sources of income or other assets to levy upon, it will either research other sources or issue a Balance Due (Bal Due) to a local area office for collection, several weeks subsequent to the final notice.
Correspondence With Compliance Center
Normally, it is ineffective to write to a Compliance Center. It may take some Compliance Center six weeks or more to process correspondence. For example, if your client receives a Notice 504 even though he paid the tax upon receipt of the Notice 503, a letter to the IRS will not stop assignment to ACS. The IRS will not process your letter for six weeks, yet the computer continues to automatically refer the matter to ACS on a set cycle.
Streamline Installment Agreements
A taxpayer may be able to secure a 60-month payment plan for 1040 liabilities of less than $25,000. The IRS Restructuring and Reform Act of 1998 requires the IRS to grant a payment plan to individual taxpayers who owe less than $10 thousand. A taxpayer may set up a streamlined online at the IRS website.
Telephone Collection Efforts
If an account cannot be collected by a Returns Processing Center by using the matter will then be transferred to a ACS for enforced collection measures or telephone collection efforts. Each ACS, including the Return Processing Center, has a computerized telephone collection system and is authorized to levy on bank accounts, wages and accounts receivable.
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