The letter discusses payment options such as an installment agreement. The letter also discusses interest and penalties that accrue after 30 days. Interest accrues at 1% per year; penalties accrue at 6% per year after 90 days.
If the payment is not made within 30 days, the letter advises that the IRS has following collection enforcement options which may result in additional costs:
• Referral to the Department of Justice to initiate litigation against you.The letter also advises that (i) Administrative Appeals rights are available if not previously offered and (ii) refund suit may be available in the district court or the Court of Federal Claims. In a refund action, one early issue will be whether the penalty is subject to a full-payment rule of the type that applies in income tax matters under the Flora rule. I don't think so, but won't go down that rabbit-trail right now.
• Referral to the Department of the Treasury's Financial Management Service. (This referral involves an additional debt-servicing fee that is approximately 18% of the balance due.)
• Referral to private collection agencies. (Referral to a private collection agency increases the additional debt-servicing fee from approximately 18% to 28% of the balance due.)
• Offset of federal payments such as income tax refunds and certain benefit payments such as social security.
• Administrative wage garnishment.
• Revocation or suspension of federal licenses, permits or privileges.
• Ineligibility for federal loans, loan insurance or guarantees
Among the bulleted options above, the Government's maximum leverage will come from a DOJ suit to reduce the assessment to judgment.
My colleague who provided the letter asked for input from readers whether the Government has exercised any of the listed collection alternatives other than suit to reduce the assessment to judgment. My understanding is that the Government can do the Treasury offset and the garnishment whether or not a suit was filed within the key two year period. And presumably the Government can do the actions that are not directly collection actions (the latter two). But I wonder whether the Government could refer the debt to private collection agencies without obtaining a judgment in the required two year period. I and he would appreciate hearing from others on this issue.