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IRS Collection Process

Under the law, the IRS has a variety of methods available to collect overdue taxes. Before the IRS begins its "collection process," a taxpayer is typically asked to pay voluntarily, either under an installment agreement or by working out some method of payment. Taxpayers who do not cooperate will probably have an IRS lien filed on their property and have property or wages levied (seized).

SIDEBAR: Creditors are notified when the IRS files a lien and the liens are reflected on your credit report.

TIP: The IRS publishes a pamphlet explaining its collection process in detail. It is available online at www.irs.gov/pub/irs-pdf/p594.pdf.

Can the IRS seize the funds in my retirement plan?

Yes. The IRS can seize property, such as retirement plans and 401(k)s, which are typically safe from debt collection. The law allows the IRS to seize and sell any type of real or personal property that you own or have an interest in if you owe taxes.

Can I go to jail for failing to pay my taxes?

Yes. If you have violated criminal laws, you could be prosecuted and sent to jail. However, just because you owe taxes, have not filed a return or are late filing a return does not necessarily mean you are under criminal investigation.

Are tax shelters legal?

Although the term "tax shelter" implies some sort of tax loophole, in reality tax shelters are legal and available to many taxpayers.

EXAMPLE: A taxpayer’s home is a type of tax shelter: mortgage interest is deductible, the profits from the sale of home (up to $500,000 per couple) are not taxed, and repairs from damage and theft may be deducted.