Understanding IRS Collection Procedures

The U.S. Internal Revenue Service is the single largest collections agency in the world.  According to the most recent statistics available, in 2013 the IRS spent $11.6 billion and employed just under 87,000 to collect more than $2.8 trillion in tax revenue.  Of those 87,000 personnel, over 19,000 are directly involved in enforced collections against taxpayers that owe back taxes.

While the IRS is one bill collector that can have a serious impact on your life, it’s important to understand just how they work.  So the first thing to realize is that the IRS is a slow moving bureaucracy.  It is highly driven by forms, written procedures and is resistant to change.  Their playbook is public record and they are required to follow it.  While this may not bode well for you resolving your tax matters expeditiously, it does give you some comfort in that you can figure out what is coming next.  Below we break the IRS collections process down into the 1040 notice sequence and the collections system.

1040 Notice Sequence
The IRS doesn’t start collections against you simply because you file a return with a balance due.  The process actually begins when they issue a letter called a Statutory Notice of Deficiency or SNOD.  This letter informs you of the IRS’ intent to assess a tax deficiency and informs you of your rights to dispute the proposed adjustment.  From here, the notice sequence progresses like this if you fail to respond at each stage:

  • Request For Payment
  • Form 668 – Notice of Federal Tax Lien Filing (for balances over $10,000)
  • CP501 – Reminder Notice
  • CP503 – Immediate Action Required
  • CP504 – Notice of Intent to Levy
  • Letter 1058 – Finial Notice of Intent to Levy

The CP503 typically comes about 4-5 weeks after the first notice.  The remaining notices will each come around 30 days after one another so it can take about 4 months from the initial letter until it culminates with a Letter 1058.  While the CP504 language sounds nasty, one may choose to ignore it.  However, there are two things to note about the Letter 1058:

  1. It is the first opportunity you have to file an appeal
  2. Thirty days after the letter, the IRS can levy you.

Does this mean that the IRS will</