When faced with a tax liability, the journey every business takes to obtain financial peace of mind is unique. But when it comes to the IRS collecting on a back tax liability, both the IRS and Congress have created a general path that must be followed through the laws and rules set forth in the Internal Revenue Code and Internal Revenue Manual.
Generally speaking, a liability is created when a tax return is filed and the tax liability is not paid in full. Shortly after a tax liability is assessed, the IRS establishes an interest in the taxpayer's property. Although this becomes the starting point to most collection cases, things can start to get wildly off track if a taxpayer does not understand what the IRS will do next and what steps their business should take in order to ensure a successful resolution to the liability.
The most important aspect of taking back some control of the collection process is establishing compliance. If the liability was created by not paying the full amount of taxes owed, the IRS will require that the taxpayer demonstrate the ability to pay future taxes first and foremost. Therefore, a taxpayer will benefit by knowing and fulfilling this prerequisite as early in the collection process as is possible.
Assuming compliance is met, a plan should be put forth in regards to how the taxpayer would like to repay the taxes. It's important to note that the IRS has different rules for collecting against businesses and individuals, rules also differ for how much is owed in addition to the type of tax owed. Therefore, it is not uncommon for taxpayers and practitioners alike to run the risk of trying to accomplish things that cannot be done or, more worrisome, not exploring a potential favorable resolution.
When it comes to tax resolution professionals, some companies are able to navigate their way through the collection process without significant outside involvement. On the flip side, there are certainly companies that won't remain in business without professional assistance. In my experience, taking on a resolution strategy alone takes a considerable amount of time and resources and is not without risks. One of the most critical components to effectively resolving a collection case is experience. After all, the IRS has 100 years of experience working to its benefit.
Ultimately, taxpayers should be mindful that regardless of the actions taken to address the liability, the IRS collection process continues until the liability is paid in full or a resolution is put in place. This means that phone calls, letters or other communication efforts initiated by the taxpayer will not be enough. Rather, keeping a mindful eye on IRS mail coupled with regular follow-ups and planning will be imperative to protecting the businesses long-term interests.