This Insights was contributed by Richard Pasquantonio, CPA/CFF, CFE, CDFA (NC License Number 33577), an associate at Adam Shay CPA, PLLC.

The IRS Collection Process is a series of actions the IRS takes to collect taxes if they are not paid voluntarily. Before the collection process begins, the IRS will send you a bill called a CP14 Notice. It will identify the tax period and explain the amount of tax, any payments made, additional interest and/or penalties and the balance due. 

If the taxpayer does not respond to the bill, the IRS will resend a CP501 Notice. Once you receive a bill from the IRS, you can pay it, ignore it or challenge it.

If you pay the bill, then the issue is resolved. However, many people are unable to pay the full amount due or are uncertain if the amount due is accurate.

If you ignore the bill, the IRS will assign your case to the Automated Collection System (ACS). As the name implies, much of this process is performed automatically, including levying financial assets or filing liens against property via Notice CP504. 

However, the ACS also employs IRS Contact Representatives responsible for collecting unpaid taxes from delinquent taxpayers who have not complied with previous notices. They function much like the collection department of a large corporation documenting taxpayer responses and soliciting payments.

ACS Contact Representatives have very strict guidelines they are required to follow. Unless the taxpayer can pay the balance in full or the amount owed is less than $50,000, it is often beneficial to request a Collection Due Process hearing in order to get the case in front of an IRS Appeals Officer or Settlement Officer, who may have more flexibility and knowledge of the tax code and IRS procedures. 

This is a particularly useful approach if it is determined that the amount due is not accurate, as any attempt to explain the issue with IRS Collections often proves futile.

If the amount due is accurate, then alternative payment resolution options that exist at the collection level include traditional and monitored installment agreements, Offer in Compromise or requesting the account be placed into Currently Not Collectable status. 

If the amount due is less than $50,000, taxpayers are eligible to participate in the Streamlined Installment Program which requires little documentation. Otherwise, the taxpayer is required to complete the appropriate personal financial statement associated with the resolution option for which they choose to apply. They must also provide the IRS with three months of supporting documentation.

After the IRS reviews the package, it will either accept or reject the taxpayer's application. If the IRS accepts the application, the taxpayer is responsible to honor the term of the agreement. If the taxpayer has  requested a monitored agreement or to be placed in a Currently Not Collectable status, then the taxpayer may be asked to resubmit updated financial statements to reassess his or her ability to pay.

If the IRS rejects the taxpayer’s application, then the taxpayer may request a manager review the application. If the review does not change the result, then the taxpayer may submit his or her application to the Collection Appeal Program, the Office of Appeals or file a petition in the Tax Court.

Richard Pasquantonio, CPA/CFF, CFE, CDFA (NC License Number 33577), is an associate at Adam Shay CPA, PLLC. He focuses on forensic accounting, fraud prevention and detection, and tax controversy resolution. He is also an AICPA CFF Champion. The purpose of the CFF Champion program is to inform the professional community about the vital role of forensic accounting professionals, the knowledge required to become a CFF, and the benefits of the CFF credential. For more information, visit http://www.wilmingtontaxesandaccounting.com/ or email him at [email protected]. Pasquantonio can also be reached by phone at (910) 256-3456.

Adam Shay, CPA (NC License Number 35961), MBA, is managing partner of Adam Shay CPA, PLLC. Over the last several years, the firm has grown from a one-man shop to one of the largest firms in the Wilmington area. Adam focuses on minimizing taxes and improving the financial results of entrepreneurs. Those results are obtained by taking a proactive approach to all aspects of taxes and financials. Adam is actively involved in supporting the Wilmington entrepreneurial and startup community. He earned a Bachelor of Business Science in commerce from the University of Virginia and a Master of Business Administration (MBA) degree from the University of Maryland. During his spare time, Adam enjoys spending time with his two boys and wife, Sarah, as well as coaching and watching sports and spending time outdoors.