What is the IRS billing and collection process?

Navigating the IRS billing and collection process can be an intimidating experience, often perceived as a daunting bureaucratic maze. However, understanding the intricacies of this process can empower you to make informed decisions when dealing with your tax situation. In this comprehensive exploration, we will delve into the IRS tax billing and collection process, shedding light on its standard procedures and providing you with valuable insights to help you navigate it more effectively.

Computer-Generated Notices: 

As a result of the stringent budget limitations faced by the Internal Revenue Service, the agency has increasingly turned to computer-generated tax bill notices as a primary means of communication with taxpayers, a process that frequently occurs with minimal direct human intervention. This operational approach underscores the reality that, in many cases, your tax bill might traverse its entire journey through the IRS’s internal systems without a single human eye perusing its contents. In fact, it’s entirely plausible that your tax bill could languish in the depths of the IRS’s digital infrastructure, accumulating dust, metaphorically speaking, for an extended period, possibly exceeding six months, before receiving any substantive attention or resolution.

The confluence of limited resources, a growing workload, and the need for efficiency has led the IRS to rely heavily on automated systems for the generation and dissemination of tax-related communications. These computer-generated tax bill notices are designed to streamline the process, expedite the delivery of essential information to taxpayers, and reduce the administrative burden on the IRS’s workforce.

However, this mechanized approach comes with its own set of challenges and potential drawbacks. While it enhances efficiency in many respects, it also means that human oversight and personalized handling of tax matters may be deferred or even sidelined in favor of automated procedures. Consequently, taxpayers may find themselves navigating a digital labyrinth of processes and algorithms before their concerns are finally addressed by a human agent.

In the midst of this digital journey, your tax bill may remain in a virtual limbo, awaiting its moment in the spotlight. This prolonged period of dormancy can be attributed to various factors, including the sheer volume of tax-related transactions and the prioritization of more urgent matters by the IRS’s limited human resources.

In essence, the IRS’s heavy reliance on computer-generated tax bill notices reflects the complex balancing act between fiscal constraints and the agency’s commitment to fulfilling its mandate. As taxpayers, it is important to be aware of this operational reality and to exercise patience and persistence when engaging with the IRS, understanding that your tax matters may pass through numerous automated checkpoints before human intervention becomes a reality.

CP Notices: 

Once a balance due notice is recorded in your IRS account, a series of computer-generated CP (Correspondence Paragraph) Notices are automatically sent out by the Service Center. It all starts with the non-threatening CP-14, which kindly informs you of your tax debt. If you have multiple unpaid tax bills, the IRS may accelerate the process. By paying attention to the CP notices you receive, you can gauge how close the IRS is to taking more serious actions regarding your case.

Individual Income Taxes: 

Approximately five weeks after the initial friendly CP-14 notice, the IRS computer dispatches the “500” Series notices. Keep an eye on the upper right-hand corner for identification. CP-501 is the first in this series, signaling “You Have a Balance Due.” After that, about two weeks to a month later, you might receive the more concerning CP-503 – “Immediate Action Required.” Following that, in several weeks to two months, a CP-504 might land in your mailbox, warning you about an “Amount Due” and the “Intent to Levy.” In four to eight months, you could receive a CP-90, signaling the “Final Notice – Intent to Levy” and informing you of your right to a hearing. CP-90 often means your case is heading to either the Automatic Collection site or to a Revenue Officer. The entire cycle can take anywhere from four to eight months. 

Payroll Taxes: 

If your business owes back payroll taxes, the IRS often shortens the notice cycle to six to eight weeks, depending on the magnitude of your delinquency.

In essence, the IRS tax billing process is heavily reliant on automated systems, and the timeline and severity of notices you receive depend on the type and amount of taxes owed. Staying informed and addressing these notices promptly is crucial to managing your tax obligations and avoiding more serious actions by the IRS.

Can you delay the IRS automated billing cycle?

When dealing with the IRS tax billing process, there are a couple of tactics you can consider to potentially delay the computerized billing cycle:

A. Requesting 45-Day Delays: 

With each notice you receive, you have the option to request a 45-day delay on your account by sending a brief letter to the IRS. This is the maximum time period that can be entered into the IRS computer system to temporarily suspend the collection process. When the next notice arrives, you can repeat this process, asking for another 45 days. This effectively creates an unofficial short-term payment plan. Interestingly, these 45-day delay requests sometimes lead to taxpayers not hearing from the IRS for a year or even longer, offering some breathing room to address their tax situation.

B. Beware of Letter 1058: 

While the CP-90 notice may seem threatening, it’s worth noting that it can sometimes be a bit of a bluff. The real one to watch out for is the next step in the process: Letter 1058, also known as the “Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing.” Failing to respond to this notice can indeed result in the IRS taking more serious actions, such as levying your bank account, garnishing your wages, or tapping into other sources of income.

These tactics can provide some temporary relief and potentially delay more severe collection actions by the IRS. However, it’s crucial to remember that they are not long-term solutions. To effectively address your tax debt and prevent escalated enforcement actions, it’s advisable to work on a more comprehensive strategy, such as setting up an installment agreement or exploring other options that align with your financial circumstances.

The Automated Collection System

Understanding the Automatic Collection System (ACS) and how it operates within the IRS collection process can be vital when dealing with tax-related matters:

Role of ACS: 

When taxpayers don’t address their tax debt during the IRS notice system, their case typically moves into the hands of the Automatic Collection System, or ACS. ACS is essentially an arm of the IRS with the authority to handle the collection of overdue taxes, pursue unfiled tax returns, and initiate wage and asset levies. However, it’s essential to note that, at least for the time being, ACS has been relatively lenient in terms of enforcement actions, primarily focusing on obtaining unfiled returns and seizing tax refunds. This leniency can be attributed to the government’s financial challenges. ACS is staffed by numerous clerks who work at computer stations, often wearing telephone headsets. They follow scripted procedures when requesting payments and responding to requests for payment plans or extended time to pay.

Post-COVID ACS:

In the wake of the COVID-19 pandemic, communicating with the IRS’s Automated Collection System (ACS) via telephone has often proven to be a daunting and time-consuming task. Lengthy delays, sometimes stretching for hours or more, became the unfortunate norm. This situation not only frustrated taxpayers but also hindered the efficient resolution of tax-related issues. However, the landscape has been promised a transformation with the introduction of the Inflation Reduction Act, which many hope will result in substantial improvements in ACS call response times.

The implementation of the Inflation Reduction Act has ushered in something of a change already, particularly in the realm of ACS phone inquiries. The most noticeable enhancement has been in the comparative promptness with which calls to ACS are now addressed. To be clear: you will still be on hold for a while, but it isn’t nearly as bad as it has been for the last few years. The protracted wait times of the past have been significantly reduced, and – according to IRS data- many callers find themselves connected to ACS representatives within just a few minutes. 

Furthermore, the positive shifts in ACS response times extend beyond mere expediency. Once you are connected with an ACS clerk, you will likely encounter a notable change in their approach to assisting you. In the past, time constraints often limited the assistance provided during a call. However, under the new paradigm, ACS clerks are tasked with not only being quicker to answer your call but also to display a willingness to invest as much time as necessary to help resolve your tax account issues. This customer-centric approach can translate into extended phone conversations, sometimes spanning an hour or more, where the focus is supposed to be on addressing your concerns comprehensively and ensuring that your tax matters are resolved satisfactorily.

Case Size and ACS: 

Typically, unless your tax debt case is substantial, usually involving amounts around $50,000 or more, it will often remain within the ACS system. In some cases, older tax debts may be referred to outside collection agencies. However, it’s important to note that these external agencies lack the power to initiate levies.

Understanding how ACS operates within the IRS collection process can help you anticipate what to expect and how to interact effectively if your tax situation reaches this stage. Keep in mind that while ACS has been relatively lenient in recent times, changes in government policy and financial circumstances can impact its approach to enforcement actions in the future.

Delaying ACS Collections

When dealing with the Automatic Collection System (ACS) and aiming to slow down collection efforts, there are strategic steps you can take:

Request More Time: 

You can call the IRS and ask for more time to address your tax debt. The phone representative will need to enter a specific freeze code into the IRS computer system, depending on your situation. Requesting additional time, filing for bankruptcy, or being placed on “uncollectible” status all have different corresponding codes.

Freeze Code Benefits: 

When a freeze code is applied to your IRS account, collection activities are halted for the specified duration associated with that code. This pause can last for a significant period, sometimes up to a year or even longer. Once the freeze period expires, the IRS computer system will automatically trigger a review and potential further action on your case.

Short-Term Holds: 

You can request a short-term hold of up to 45 days simply by asking for it. However, if you genuinely cannot afford any monthly payments, you can ask to be classified as “Currently Not Collectible” (CNC). To determine if you qualify for CNC status, it’s advisable to have an IRS Form 433-F prepared.

CNC Status Approval:

If your request for CNC status is approved, you’ll receive an IRS CP-4624C letter stating that your case has been closed. It’s important to note that this doesn’t mean your IRS debt disappears; it means the IRS won’t actively pursue enforced collection actions, and you won’t be required to make payments. However, the ten-year collection statute will continue to run, and the IRS may file a Notice of Federal Tax Lien.

Denial of Uncollectible Status: 

If the IRS denies your request for uncollectible status, they may insist on an installment agreement or asset liquidation. If you disagree with their decision, you can ask to speak with a manager or file an appeal.

Consider an Offer in Compromise: 

You also have the option to file for an Offer in Compromise, which can be based on doubt as to collectability or doubt as to legal liability. Additionally, keep in mind that filing for bankruptcy can halt all collection activities, especially in regions like the Ninth Circuit, which is known for its debtor-friendly bankruptcy procedures.

Question the Accuracy of the Tax Bill: 

Questioning the accuracy of a tax bill can often be an effective strategy. If you can raise doubts about the bill’s accuracy, the IRS may need to pause and verify its correctness, a process that can take months. If this approach doesn’t work, you can contact the Taxpayer Advocate, refer to IRS Policy Statement P-5-16, or seek assistance from a liaison officer at your Congressional office.

Understanding the reasons behind owing back taxes is the first step toward resolving this challenging situation. Whether it’s due to missed filings, payment issues, errors, or audit outcomes, there are ways to address tax debt responsibly. Seek professional guidance when needed, communicate with tax authorities, and take proactive steps to manage your tax obligations effectively. Remember, addressing back taxes is a process, and with the right approach, you can navigate it successfully and regain financial peace of mind.