Demystifying the IRS Collection Process

The IRS has made it clear that the $80 billion in funding from the Inflation Reduction Act of 2022 is being put to work. With the money, the IRS has not missed a beat and has begun beefing up its civil collection enforcement division. Local collection agents, known as revenue officers, are being hired and trained, with a heightened focus on high-income taxpayers and unpaid payroll taxes. 

Revenue officers are the most well-trained IRS collection agents. With proper notice, they have the power to seize a taxpayer’s wages, bank accounts, retirement accounts, and house. Revenue officers can also seize a business and force it to close. 

In addition to expanding revenue officer enforcement, expect the IRS to jump-start sending collection letters from the computer-driven Automated Collection System (ACS). The ACS simplifies the IRS collection process, using artificial intelligence (AI) to utilize information in the IRS’s database, such as where a taxpayer works and banks. The IRS compiles data about a taxpayer from financial documentation it has received, such as a taxpayer’s W-2 (wages) or Form 1099 (interest). After giving notice, the ACS can match a taxpayer that owes money to the IRS providing information on where they work and bank. 

The IRS’s power to levy is predicated on sending a taxpayer a Final Notice of Intent to Levy with Collection Due Process Rights.

The IRS Final Notice of Intent to Levy with Collection Due Process Rights is the offspring of an uproar over old IRS collection tactics. Until 1998, the IRS collected unpaid taxes like taxpayers were living in the days of the Wild West. There was no due process; the IRS was not required to give any notice to taxpayers before seizing property and appeal rights were after-the-fact. Taxpayers may have known they owed money to the IRS, but they didn’t know the IRS was coming. Congressional hearings on IRS collection abuses made front-page news and resulted in the passage of the IRS Restructuring and Reform Act of 1998, giving taxpayers due process rights to slow down the IRS collection machine.  

To demonstrate the importance of collection due process rights in the defense of taxpayers, in 1998, the IRS sent more than 2.5 million garnishments on liquid assets (e.g., wages and bank accounts) and made more than 2,200 seizures of real and personal property. By comparison, in 2018, with due process laws firmly on the books, the IRS made only 639,000 garnishments and 275 property seizures. The data also gives us a window into the mind of the IRS, easing taxpayers’ anxieties that the IRS is laser-focused on seizing their homes. 

In reality, taking a taxpayer’s house is hard. It requires collection due process, followed by high-level approval within the IRS, and then referral to the Department of Justice for a foreclosure suit. It’s more legend than reality. The truth of IRS collections is that they are primarily after “easier” revenue sources. For example, garnishment of wages and bank accounts. A noncompliant taxpayer can be brought to their knees quickly from the loss of wages, leaving them without any money to pay bills. 

 With the IRS putting the money received from Congress to work in collecting taxes, taxpayers should be well-advised on how to protect their property. Collection due process gives taxpayers the right to notice, an administrative IRS appeals hearing, and, if necessary, trial in U.S. Tax Court (see Internal Revenue Code Section 6330). The filing of a collection due process appeal stops the IRS from levying until the appeal process is completed. The key to exercising due process rights is recognizing the IRS Final Notice of Intent to Levy letter which starts the appeal process. 

Unfortunately, the IRS makes it difficult for taxpayers to identify if they have received the Final Notice of Intent to Levy with Collection Due Process Rights. The IRS sends taxpayers multiple collection letters with “intent to levy” language, but without giving collection due process rights. These letters include: “Final Balance Due Reminder – Notice of Intent to Seize (Levy) Your Property or Rights to Property” and “Notice of Intent to Levy – Intent to Terminate Your Installment Agreement.”  The real Final Notice of Intent to Levy is required to state a taxpayer’s right to collection due process and appeal. These other similar letters state the notice of intent to levy but omit collection due process rights. The unfortunate effect of misleading IRS notices is taxpayer confusion and the belief that the IRS can levy when, in fact, they cannot.

The IRS will be ramping up their collection initiatives in the foreseeable future. Revenue officers and the ACS will be out seeking payment. The best method to determine if a taxpayer has been issued a real Final Notice of Intent to Levy is to contact the IRS Practitioner Priority Line (PPL). The PPL is an exclusive telephone line for attorneys to secure background information about a taxpayer’s account without contacting an IRS collection agent. In other words, it permits obtaining necessary disclosures without waking the bear. The PPL provides IRS account transcripts, which can be read to determine if a real Final Notice of Intent to Levy with Collection Due Process Rights has been sent. Additionally, the PPL can disclose the amount owed, penalties charged, interest accrued, the collection status of the account (i.e., if a taxpayer is in an active installment agreement), and if a file is pending assignment to a local revenue officer.