In the world of legal practice, attorneys often find themselves facing a variety of complex and challenging cases. One such area that attorneys can consider adding to their practice is IRS representation, specifically focusing on the IRS collection process. While it may sound intimidating at first, understanding the IRS collection process can be a valuable addition to your legal practice.

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In this blog, we’ll break down the IRS collection process, demystifying it and highlighting the importance of IRS representation for attorneys.

The Scale of the Issue

One crucial aspect to understand is the sheer scale of the problem. The IRS has identified over 10 million non-filers, individuals who have not filed their taxes, and the government knows who they are. Additionally, there are more than 15 million taxpayers already in the IRS collection division inventory, including 3.2 million assigned to private debt collectors. In total, there are 25 million taxpayers with outstanding tax issues. Considering there are approximately 156 million tax filers in the country, it’s clear that a significant portion of the population faces tax-related challenges.

The IRS’s Response

In May 2020, the Treasury Inspector General for Tax Administration raised concerns about the IRS’s lack of action regarding these 10 million non-filers. The IRS initially promised to address this issue, but the COVID-19 pandemic caused delays. However, with the situation stabilizing, the IRS has now begun taking action, including sending out about 8 million balance due notices in June.

Understanding the IRS Collection Process

The IRS collection process is relatively straightforward and follows a linear path, making it accessible for attorneys to navigate. It starts when the taxpayer fails to pay their taxes or address their outstanding tax issues. Let’s break down the key stages of the process:

  1. Tax Assessment
    1. The tax assessment occurs when the IRS officially calculates the taxpayer’s liability.
    2. The tax is assessed when the return is filed or when the IRS compiles a substitute return for the taxpayer.
    3. The date of assessment is crucial, as it marks the beginning of the 10-year collection statute.
  2. Billing Notices
    1. After tax assessment, the IRS sends billing notices to the taxpayer, requesting payment.
    2. The billing notice is the first official step to inform the taxpayer about their tax obligation.
  3. Statutory Lien
    1. If the taxpayer does not respond to the billing notice or fails to pay, a statutory lien automatically arises.
    2. This “silent” lien protects the IRS’s interest in the taxpayer’s assets but remains unpublicized.
  4. Notice of Federal Tax Lien
    1. To protect their interests against other creditors, the IRS files a Notice of Federal Tax Lien in the land records.
    2. This public filing informs third parties of the IRS’s claim to the taxpayer’s property.
  5. Threat to Levy
    1. If the taxpayer continues to neglect their tax debt, the IRS issues a final notice of intent to levy.
    2. This notice warns the taxpayer about the possibility of asset seizure and outlines their right to a hearing.
  6. Collection Due Process Hearing
    1. The taxpayer has 30 days from the date of the final notice to request a Collection Due Process (CDP) hearing.
    2. During this hearing, the taxpayer can explore various options to address their tax issues.

Tolling Events

It’s important to note that certain events can “toll” or temporarily suspend the 10-year collection statute. These events include:

  • Bankruptcy: While a taxpayer is in bankruptcy and for an additional six months after, the statute is tolled.
  • CDP Hearing Request: The period between requesting a CDP hearing and its conclusion tolls the statute.
  • Offer in Compromise: The time during which an offer in compromise is under consideration tolls the statute.
  • Financial Statements Submission: The period when the government reviews a financial statement submission by the taxpayer.

Why Understanding the IRS Collection Process Matters

  1. Navigating the System: As an attorney, understanding the IRS collection process empowers you to guide your clients effectively through their tax issues, providing them with the best possible outcomes.
  2. Timely Action: By recognizing the key stages and potential tolling events in the collection process, you can help your clients make timely and strategic decisions to resolve their tax problems.
  3. Protection of Rights: Knowledge of the process ensures that your clients are aware of their rights, including the right to a CDP hearing, providing them with an opportunity to explore alternatives to asset seizure.

Conclusion:

While the IRS collection process may initially seem complex, it follows a structured and linear path. By understanding the key stages and potential tolling events, attorneys can confidently guide their clients through the process. With millions of taxpayers facing tax-related challenges, the demand for IRS representation is significant. It’s an ideal opportunity for attorneys to expand their practice and offer valuable assistance to those in need. So, if you’ve been considering adding IRS representation to your legal practice, now is the perfect time to get started.

With the right knowledge and guidance, attorneys can make a real difference in the lives of their clients, helping them navigate the IRS collection process and find solutions to their tax-related challenges.

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Further Reading

Article by IRS.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Attorneys should consult with their clients on a case-by-case basis and remain updated on applicable laws and regulations to provide accurate and tailored legal guidance.

FAQs

What is a tax assessment, and when does it occur?

A tax assessment is the official calculation of a taxpayer’s liability. It occurs when the taxpayer files their return or when the IRS compiles a substitute return for the taxpayer. The date of assessment is critical as it marks the beginning of the 10-year collection statute.

What is a threat to levy, and what does it signify?

A threat to levy is a notice sent by the IRS to warn the taxpayer about potential asset seizure. It signals that the IRS is prepared to take enforcement action. The taxpayer also receives their right to a hearing during this stage.

How can attorneys help taxpayers facing the IRS collection process?

Attorneys can provide guidance and representation to taxpayers throughout the collection process. They can help clients understand their rights, explore alternative solutions, and ensure that the correct steps are taken to resolve their tax issues.

How can attorneys challenge incorrect tolling of the statute by the IRS?

Attorneys can challenge incorrect tolling of the statute by filing a Form 911 with the Taxpayer Advocate’s Office. If the IRS wrongly believes the statute is tolled when it isn’t, a technical advisor can be involved to correct the issue.