What Is IRS Publication 594 and How Does It Address Tax Collection?

The IRS has a structured process for collecting unpaid taxes, and understanding it can help taxpayers avoid penalties or legal trouble. IRS Publication 594 explains this process, detailing payment options, dispute procedures, and consequences of noncompliance. Knowing these details can make handling tax debt more manageable and prevent enforcement actions.

Who Is Covered by This Collection Guidance

IRS Publication 594 applies to individuals, businesses, and other entities with federal tax liabilities. This includes self-employed individuals who underpaid estimated taxes, wage earners with insufficient withholdings, and corporations that failed to meet obligations. Estates and trusts with outstanding balances also fall under IRS collection procedures.

The guidance also covers responsible parties in cases where payroll taxes were withheld but not remitted. This can trigger the Trust Fund Recovery Penalty under Internal Revenue Code 6672, holding individuals personally liable for unpaid payroll taxes.

The IRS categorizes taxpayers based on the severity of their debt. Those with minor delinquencies may receive automated notices, while larger balances could lead to liens or levies. Taxpayers experiencing financial hardship may qualify for Currently Not Collectible (CNC) status, temporarily halting collection efforts if they demonstrate an inability to pay basic living expenses.

Common Methods Used for Resolving Outstanding Balances

The IRS offers several ways to resolve unpaid taxes before enforcement escalates. Penalty abatement can reduce or eliminate fines if the taxpayer shows reasonable cause, such as illness, natural disasters, or reliance on incorrect IRS advice. The First-Time Penalty Abatement program allows eligible taxpayers to remove certain penalties if they have a history of compliance.

An Offer in Compromise (OIC) lets taxpayers settle their debt for less than the full amount owed. The IRS evaluates OIC applications based on income, expenses, asset equity, and future earning potential. To qualify, taxpayers must demonstrate financial hardship or doubt about the accuracy of the liability. The IRS provides a pre-qualifier tool to assess eligibility, and applicants must submit Form 656 along with a non-refundable application fee and initial payment.

Taxpayers facing immediate collection actions can request a temporary delay by submitting Form 433-F or Form 433-A to document financial status. If the IRS determines they cannot currently pay, collection activity may be suspended, though interest continues to accrue.

Arranging Payments and Installment Agreements

For those who cannot pay in full, the IRS offers installment agreements. A short-term payment plan is available for individuals owing less than $100,000 in combined tax, penalties, and interest, provided they can pay within 180 days. No setup fees apply, but interest and penalties continue to accrue.

A long-term installment agreement allows monthly payments over an extended period. Individuals owing $50,000 or less can apply online without financial statements, while businesses must owe $25,000 or less for the streamlined process. Higher balances require financial disclosures using Form 433-A or 433-F. The IRS may mandate direct debit payments for larger amounts.

Interest accrues at the federal short-term rate plus 3%, compounded daily. Setup fees range from $31 for direct debit agreements to $130 for paper applications, though low-income taxpayers may qualify for reduced fees or waivers. Defaulting on payments can lead to enforced collection actions such as bank levies or wage garnishments.

Responding to Notices and Requests

When the IRS contacts a taxpayer about an outstanding balance, responding promptly can prevent enforcement. The process typically begins with a CP14 notice, the first formal communication of a tax debt. If ignored, additional notices escalate in urgency. A CP501 reiterates the debt, a CP503 warns of potential collection measures, and a CP504 signals intent to levy assets.

Ignoring these notices increases the risk of enforced collection, including tax liens that attach to property and impact creditworthiness. A Letter 1058 or LT11 requires immediate attention, as these signify a final notice of intent to levy with a right to a Collection Due Process (CDP) hearing. Requesting a CDP hearing with Form 12153 within 30 days can temporarily halt collection actions while the appeal is reviewed.

Approaches to Challenging Tax Liabilities

Taxpayers who believe their tax liability is incorrect have several options to dispute it.

Audit Reconsideration allows taxpayers to challenge an assessment when new evidence becomes available. If a taxpayer disagrees with an IRS audit, they can request a review by submitting Form 12661 with supporting documentation. This process is useful when a taxpayer did not participate in the original audit or failed to provide key records. Unlike formal appeals, audit reconsideration does not require a petition to the U.S. Tax Court.

Filing a formal appeal through the IRS Independent Office of Appeals is another option. Taxpayers who receive a Notice of Deficiency (90-day letter) can challenge the assessment by filing a petition with the U.S. Tax Court. If the dispute involves penalties, a Penalty Appeal can be requested using Form 843. The Appeals Office operates independently of IRS enforcement. If administrative remedies fail, litigation in the U.S. Tax Court, Court of Federal Claims, or a U.S. District Court remains an option, though legal proceedings can be costly and time-consuming.

Consequences of Ignoring Obligations

Failing to address unpaid taxes can lead to serious financial and legal consequences. The IRS has broad authority to collect debts through liens, levies, and wage garnishments. The longer a balance remains unpaid, the more aggressive the collection measures become.

A federal tax lien attaches to a taxpayer’s property, including real estate, vehicles, and financial assets, making it difficult to sell or refinance. The lien is recorded publicly, affecting creditworthiness and borrowing options. If the debt remains unresolved, the IRS may escalate to a levy, allowing the agency to seize bank accounts, garnish wages, or intercept federal payments such as Social Security benefits. Unlike a lien, which is a claim against assets, a levy results in the actual seizure of funds or property.

In extreme cases, tax evasion or willful failure to pay can lead to criminal prosecution. Under Internal Revenue Code 7201, attempting to evade taxes is a felony punishable by up to five years in prison and substantial fines. While criminal charges are rare, the IRS pursues cases involving fraudulent returns, asset concealment, or repeated noncompliance. Additionally, unresolved tax debts can lead to passport restrictions under the Fixing America’s Surface Transportation (FAST) Act, preventing international travel for those with seriously delinquent tax debt exceeding $62,000.