Navigating IRS Collections: A Guide for Tax Pros

Dealing with the IRS in any capacity can be a distressing experience, especially for someone without specialized knowledge. The process of IRS collections is notably one of the most intimidating and stressful aspects. When you fall behind on your tax obligations, it initiates a sequence of events, commencing with the accrual of interest and penalties and potentially culminating in IRS enforcement actions.

The IRS has a 10-year window to collect a debt before the statute of limitations runs out. During that period the agency vigorously pursues what it is owed. In FY 2022, the IRS collected over $98.4 billion in unpaid assessments on returns filed with additional tax due. That same year, the IRS received an $80B influx through the Inflation Reduction Act and announced plans to allocate a significant portion of its newfound riches toward collections. 

You can help boost your practice revenue by providing expert service to grateful clients who need it.  As a tax pro, you need the tools to offer relief to clients facing IRS collections. The experts at IRS Solutions® are here to walk you through the various collections methods the IRS employs, the forms you’ll need to master, and some tips that will help you find success.

The Impact of IRS Collections

The IRS follows a stringent set of procedures and provides multiple notices before eventually employing a variety of drastic methods to collect debts, each with its own set of challenges and consequences.

• Levies are among the IRS’s most potent tools, allowing the agency to seize assets directly. This could entail freezing bank accounts, garnishing wages, or even taking money from retirement accounts. Imagine the stress and anxiety your client would feel upon receiving no weekly paycheck or discovering their bank account has been drained, jeopardizing a long-awaited and imminent retirement.
  
  
• A federal tax lien is a legal claim against a taxpayer’s property. Once an IRS lien is in place, property sales become complex and convoluted. This can devastate small business owners, who may need to liquidate assets or factor their accounts receivable to keep their operations running.
  
  
• The IRS has the authority to request the State Department to revoke and deny renewal of the taxpayer’s passport if they have a seriously delinquent tax debt. This can disrupt not only travel plans but also international business operations. For frequent travelers or those with family overseas, passport forfeiture can be a nightmare scenario.

IRS collections cast a long shadow over every aspect of a taxpayer’s life, affecting their daily routines and future plans. The emotional upheaval triggered by collections can even impact a person’s relationships and physical health. Tax professionals play an essential role in helping them resolve the debt and return to a normal, happy life.

How to Help Clients Facing IRS Collections

IRS collections can be overwhelming, but you can leverage your skill and experience to help your clients find peace. Begin by identifying and filing all missing paperwork. From there, you can determine the most appropriate resolution. When full payment is not possible, installment agreements are often the most straightforward route, allowing taxpayers to pay off their debts in manageable monthly payments. Skilled negotiation with the IRS can also lead to penalty abatements, a reduced settlement through an Offer in Compromise, or a classification to Currently Not Collectible (CNC) status. 

Navigating these processes requires mastery over several forms, each of which serves a unique purpose.

• Forms 433: The IRS has a wide array of Collection Information Statements. These forms are used to obtain current financial information necessary for determining how your client can satisfy an outstanding debt. 
  • Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) and Form 433-F (Collection Information Statement) provides detailed financial information and must accompany a request for an agreement or a request for a currently not collectible status. Form 433-A (OIC) (Collection Information Statement For Wage Earners and Self-Employed Individuals) would be used to request an Offer in Compromise. 
  • Form 433-B (Collection Information Statement for Business) is used to obtain current financial information necessary for determining how a business can satisfy an outstanding tax liability.
  • Form 433-D (Installment Agreement) and Form 9465 (Installment Agreement Request) is used for setting up installment agreements with the IRS. It outlines the terms of the agreement, including the monthly payment amount and due dates. Use this form when your client can’t pay their tax debt immediately but can do so over time. 

• Form 656: Known as the Offer in Compromise form, this is used when a taxpayer wants to settle their tax debt for less than the total amount owed. This is suitable for clients who are facing financial hardship and can prove that paying the full amount is not feasible.
  
  

• Form 668(Y): Unlike other IRS forms, Form 668(Y) isn’t one you’ll file; it’s the actual notice of the federal tax lien and is recorded with the county recorder’s office (or the Secretary of State in the case of a business) for a taxpayer in arrears. The recording of the Notice of Federal Tax Lien puts the public on notice of the debt owed to the IRS. You should meet with your client as soon as possible to discuss all possible options, including dispute resolution, payment arrangements, lien subordination, or lien release.

Navigating IRS collections becomes significantly more effective with the appropriate tools at your disposal. Created by tax pros for tax pros, IRS Solutions Software offers numerous features to assist you in guiding your client through these complex challenges. 

• Power of Attorney and Tax Information Authorization: Prefilled forms that can be sent for electronic signature and uploaded directly to the CAF Unit. IRS Solutions will monitor the status and alert you once it has been approved.
  
  
• Bulk Transcript Download with Instant Analysis: To effectively help your client resolve their issues, it’s crucial to grasp the circumstances that led to their situation. Utilize the lightning-fast IRS Solutions® direct connect download tool to access, download, and print their transcripts. Within seconds, you can retrieve records from multiple years and begin your work armed with comprehensive, user-friendly reports.
  
  
• IRS Advance Notification™ (IAN): Anticipate the IRS’s next move with the power of automated transcript monitoring, peering into the IRS system 24/7 and alerting you to any transcript changes, including impending audits, return statuses, and anything else the IRS may be up to.
  
  
• Optimized Solution Recommendations: The system will analyze your client’s data and the IRS transcript to recommend the solution most likely to be accepted by the IRS – OIC, Installment Agreement, or CNC Status 
  
  
• Auto-Filled Forms and Letters: Save time with forms auto-populated with your client’s name, salutation, information, and places for signature, including Power of Attorney, 433-D, and 656, and many others. 
  
  
• Bankruptcy Date Discharge Calculator: Know the earliest filing date and dischargeable amount of taxes in a bankruptcy. 

IRS Solutions is a Tax Pro’s Best Friend. Ready to learn more about how you can use our secure, web-based platform to help grateful clients resolve their IRS collections issues more quickly and easily than you ever imagined possible? Schedule a demo today.