During the pandemic, the IRS temporarily halted all collection actions. In the coming months, IRS Collections will begin again, impacting taxpayers across the United States. Here’s what you need to know.
As we enter a post-pandemic state, the IRS begins to normalize the collection process and return to its regular pace. This will have an impact on taxpayers facing potential federal tax liens or levies, as well as other IRS collections actions.
Collection actions are part of the IRS’s repertoire against missed deadlines, unfiled tax returns, and missed tax payments. If you owe the government money, it can and will collect – eventually. Until it does so, it will coerce collection through ramping penalties and interest, and a restrictive tax lien.
These consequences can be avoided – if you’re prepared, and act as soon as possible. Let’s go over how the IRS plans to approach collection actions throughout the rest of 2021 and beyond, and let’s review the official timeline.
Why Were IRS Collections Put on Hold?
As part of an effort to reduce the pressure of economic instability following the lockdowns implemented as a result of COVID-19, the IRS delayed and held off on pursuing certain action collections starting March 2020. This included holding off on issuing federal tax liens.
However, things will begin returning to a more “business as usual” pace, according to a memo released on June 15, 2021, as COVID-19 restrictions continue to loosen, and the country continues its path towards normalcy.
IRS collections will begin, including levies on wages and bank accounts, after 30-45 days of issuing a taxpayer notice. Levies and liens will resume starting August 15th, 2021. However, taxpayers who have previously received tax lien notices for their late and overdue tax payments will have begun receiving further notices as soon as June 15th.
Tor recap the specifics of the memo:
- Balance Due notices are usually automatically sent to taxpayers when a deadline has passed, and the balance remains unpaid. Starting June 15, 2021, the IRS will begin following up on taxpayers who have not responded to older notices.
- Taxpayers with prior notices (tax liabilities dating back to 2019/2020 or older) will be notified that they have between 30 and 45 days to respond before the IRS takes further action.
- Taxpayers who fail to respond may be subject to liens and levies starting August 15, 2021.
What Are Tax Liens and Levies?
Tax liens and levies are the IRS’s primary means of enforcing a taxpayer’s responsibility to pay their respective tax dues. With IRS collections, the primary goal of a lien or levy is to encourage a taxpayer to settle their debt – and both liens and levies make a compelling case for doing so.
A federal tax lien is a legal claim on your assets and property on behalf of the government. Federal tax liens are a matter of public record, and they mean that the government has the first right to your assets as creditors. What this boils down to is a block on other forms of financing. Under a lien, you must pay your debt to the government before other creditors can collect from you. This can make it very difficult to secure a loan or seek financing.
– Tax Liens
Tax liens are one of the last things to be lifted when tackling your tax account’s overdue payments. Even declaring yourself currently not collectible does not eliminate a tax lien. Tax liens are lifted when the debt is paid but may also be prematurely lifted if you enter into a long-term payment plan with the IRS, and have been adhering to it consistently.
If you somehow choose to ignore a lien, or a notice of a lien, then it may escalate into a levy.
– Tax Levies
A levy is an actual claim on your assets and property. The government may clean out a bank account, take a portion of your paycheck every time it comes in (based on your filing status and number of dependents), or take and sell a non-primary property you own at its quick sale value.
If any of these IRS collections actions result in you still owing the IRS money, they may issue a second levy, or continue to garnish (claim) your wages. If the sale of your property or emptying of a personal account resulted in a remainder after your debt was paid, the IRS will send you that remainder.
Most people rightfully want to avoid levies at all costs. Regardless of whether you’re employed or self-employed, a levy can be an unexpected and painful intrusion into your financial health.
If you want to know how to avoid liens and levies and aren’t sure how to pay off your tax debt, your first priority should be to get in touch with a tax professional. You want someone who can communicate with the IRS and help you negotiate a plan that suits your circumstances and financial capabilities, without risking an extended lien or levy.
Other IRS Collection Programs to Resume
Aside from resuming liens, the IRS has also made note of the Department of State’s (DOS) right to exercise their authority to revoke the passports of taxpayers with seriously delinquent tax debt, starting July 15, 2021.
The IRS has resumed identifying and naming examples of seriously delinquent tax debt starting March 2021. Being certified seriously delinquent by the State Department restricts a taxpayer from obtaining a passport or renewing their travel documents.
Furthermore, the IRS will continue to automate levies in coordination with other state and federal agencies, by the following dates:
- June 2021: Balance due notices (will start being mailed by the Automated Collection System (ACS).
- July 15, 2021: Automated levies will go out via the Federal Payment Levy Program (FPLP), State Income Tax Levy Program (SITLP), and the Municipal Tax Levy Program (MTLP).
- August 15, 2021: Automated levies will continue for the Alaskan Permanent Fund Dividend Program (AKPFD). Notice of Federal Tax Liens will also be issued starting August 15.
The IRS has also made several unrelated announcements on the subject of tax enforcement and tax investigations. These include new cryptocurrency tax enforcement projects, investigations into high-income non-filing taxpayers, and repatriation suits to be filed against taxpayers with foreign assets through FATCA, and more.
IRS collections is ramping back up. If you have been putting off your IRS debt, now is the time to take action. Contact our team of professional tax attorneys today.