IRS is increasing its collection efforts
Like almost all government agencies, the IRS was badly impacted by the coronavirus
pandemic. It had to shut down various service centers and extend filing deadlines. Most
of the collection and enforcement efforts were suspended in late March 2020. For the
taxpayers, this gap from last year till now was a sigh of relief. As the country continues
to recover and with aggressive vaccination drives in place, IRS is resuming normal
collection operations on millions of accounts.
If you think debt collectors are maddening, the wrath of the IRS is far worse. The
government agency is equipped with powers to ensure that taxpayers pay what they
owe and if not they can take it by force. For every additional dollar the IRS spends on
the enforcement budget, it is expected that it could return about $5 to $7 of increased
tax collection. They have a 5-7 to 1 return on investment. If you ever wondered whether
the IRS has the authority to take money from your paycheck or get all your financial
information, the answer is yes. The IRS has the power to do these things legally but
nothing happens without issuing a warning. Continued non-payment of taxes by an
individual may lead to more aggressive tax collection measures.
The IRS has three actions that they can take to collect taxes: Filing a notice of Federal
Tax Lien, Serving a notice of Levy and Offsetting future tax refunds. The IRS might cut
you some slack if you prove to be in financial hardship by offering a monthly installment
agreement or settling the tax owed with a reduced payment amount. They may also
report that your account is not collectible currently and may delay collection until your
financial condition improves. Please note that being currently not collectibles does not
mean that the debt has been settled and gone, it means that the IRS has determined
that you cannot afford to pay the debt right now and is giving you some time.
Along with normal collection efforts, IRS has also disclosed four major enforcement
initiatives:
● Operation HiDef/Surround Sound – For targeting taxpayers who have not filed
income tax returns but they have over $100,000 of income reported by third
parties.
● Operation Liquidation – For using data analytics to match foreign and domestic
bank records obtained through FATCA with bankruptcy filings.
● Ghost Employer Project – For targeting employers who issue W-2 forms to
employees but do not file copies with the Social Security Administration and do
not report payroll activity on Forms 940 and 941.
● Repatriation Project – For using data analytics and FATCA data to locate
taxpayer assets and pursue collections actions in foreign countries.
These new initiatives are aimed at nailing criminal matters and high-dollar tax evasion.
These are coupled with continued efforts to track income involved with cryptocurrency.
If you don’t pay what you owe in taxes to the government, you will receive a bill for an
outstanding amount. The collection process starts from this bill, which continues until
your account is satisfied or the IRS may no longer legally collect the tax. The first notice
from the IRS explains the balance due plus penalties along with interest and demands
payment in full. The outstanding balance is subjected to interest compounded daily and
a failure-to-pay penalty. There are other methods of financing full payment such as
taking cash advances on credit cards or getting a loan. If you can’t pay in full, you
should inform the department of the notice and explore other payment options.