If you owe back taxes, the IRS bills you and adds penalties and interest daily. Left unresolved, it moves to enforced collection: a federal tax lien, levies on your bank accounts and wages, and passport certification. The IRS generally follows a sequence of collection notices, though notices can be delayed, accelerated, or skipped depending on the account. Each stage has a deadline, and those deadlines determine what options remain open to you.
Below is the whole sequence, what each notice authorizes, what the debt costs you while it sits, how long the IRS has to collect, and the options that are realistically available at each stage.
Collections begin when a tax is assessed and goes unpaid. The five common paths there:
If a substitute return is what created your balance, filing an accurate original return for that year can reduce the assessment. That is worth checking before you negotiate anything.
You can see your balance by year in your IRS individual online account, usually within a day of setting it up. Three sources, in order of usefulness:
Expect the number on an old notice to be lower than today’s balance. Interest is compounded daily under IRC § 6622, so a notice is a snapshot, not a payoff figure.
The IRS sends a sequence of notices, each one authorizing more than the last. The table below shows the typical order for an individual balance. Notices can be delayed, accelerated, or skipped depending on the account, so treat this as the standard path rather than a guarantee of what will arrive in your mailbox.
| Notice | What it means | Your deadline | What it authorizes |
|---|---|---|---|
| CP14 | First bill. This is the notice and demand for payment required by IRC 6303. | The due date printed on the notice. Paying within 21 calendar days (10 business days if the balance is $100,000 or more) avoids interest for the period after the notice, under IRC 6601(e)(3). | Nothing directly, but the federal tax lien arises by operation of law at this point. |
| CP501 | First reminder that a balance remains. | The due date is printed on the notice. | The IRS may file a Notice of Federal Tax Lien. No levy authority. |
| CP503 | Second reminder. No response received. | The notice includes the due date. | The IRS may file a Notice of Federal Tax Lien. No levy authority. |
| CP504 | Notice of intent to levy under IRC 6331(d). Despite the name, this is not the final notice. | Pay immediately, per the notice. IRC 6331(d) separately requires 30 days before a levy. | The IRS can levy your state tax refund based on the CP504. It cannot levy your other property based on the CP504 alone. Also supports lien filing and passport certification. No Collection Due Process hearing right yet. |
| LT11, Letter 1058, or CP90 | Final Notice of Intent to Levy and Notice of Your Right to a Hearing. Legally identical; they differ only in which IRS office issued them. | 30 days to request a Collection Due Process hearing on Form 12153. | After 30 days, the IRS may levy wages, bank accounts, business and personal assets, Social Security benefits, and state tax refunds. |
| Letter 3172 | Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320. The lien was already filed. | 30 days, calculated from the end of a five-business-day window after filing. Use the response date printed on the letter. | Nothing new. The filed lien establishes the government’s priority against other creditors. |
| CP523 | You defaulted on an installment agreement and the IRS intends to terminate it. | 30 days from the date of the notice. | Termination of the agreement, then lien filing and levy. Also triggers passport certification exposure. |
For a notice-by-notice breakdown of what to do with each letter, see our chapter on what each IRS collection letter means. The IRS describes the process in general terms in Topic no. 201, The collection process.
A CP504 lets the IRS seize your state tax refund. It does not let the IRS touch your bank account, your wages, or your property, and it does not give you Collection Due Process rights.
This gets misread in both directions. The levy language frightens people into rushed decisions, and some file an appeal that Appeals cannot hear, then wrongly assume their rights are preserved. The IRS states the rule plainly in its Collection Due Process FAQs: it cannot levy on a CP504 alone, and the final notice giving you hearing rights comes next.
The practical takeaway: a CP504 means you have time and should use it. An LT11, Letter 1058, or CP90 means the clock is running.
A federal tax lien is the government’s automatic legal claim against everything you own. Under IRC § 6321, it arises the moment tax is assessed, demand is made, and you fail to pay, and it reaches all property and rights to property, including property you acquire later while it remains in effect.
The lien exists whether or not anything is filed. What gets filed is the Notice of Federal Tax Lien, which under IRC § 6323 establishes the government’s priority ahead of purchasers, lenders, and judgment creditors. That is the part that shows up in a title search and stalls a mortgage or a refinance. Once the liability is fully satisfied or becomes unenforceable, IRC § 6325(a) requires the IRS to release the lien within 30 days. Withdrawal, discharge, and subordination are separate remedies with their own requirements, and we cover them in our chapter on removing a tax lien.
A levy is the actual taking. The IRS can reach bank accounts, wages, accounts receivable, retirement accounts, Social Security benefits, and physical assets including vehicles and real property.
Two features make an IRS levy different from an ordinary creditor’s collection. The IRS does not need a court judgment first; the levy authority comes from IRC § 6331. A wage levy is continuous, meaning it attaches to every paycheck until the liability is satisfied or released, rather than requiring a new action each pay period. Under the Federal Payment Levy Program, the IRS can also take up to 15% of Social Security retirement and survivors benefits under IRC § 6331(h).
Home seizures are real but rare, and they require higher-level approval. In practice, the IRS pursues bank accounts and wages first, and looks at a primary residence only when there is meaningful equity and no workable alternative. If a levy is already in place, our chapter on stopping IRS levies and wage garnishments covers the release process.
IRC § 6334 exempts a defined list of property from levy, including unemployment benefits, workers’ compensation, certain service-connected disability payments, court-ordered child support, some public assistance, and a portion of your wages based on your standard deduction and dependents.
Two exemptions are capped in dollars and adjusted annually, and the caps are modest: the wage exemption formula, in particular, can leave earners with far less than they expect. Our page on property exempt from IRS seizure has the current dollar amounts and the full list.
The IRS cannot take your passport, but it can certify your debt to the State Department, which can then deny a renewal or revoke the passport you hold. Under IRC § 7345, certification applies to a seriously delinquent tax debt, which for 2026 means a legally enforceable, unpaid federal tax debt totaling more than $66,000, including assessed penalties and interest.
That figure is indexed for inflation and moves every year. It was $64,000 for 2025, and the $66,000 amount for 2026 comes from Rev. Proc. 2025-32. The IRS maintains a year-by-year table on its passport certification page. Certification is reversed once the debt is paid, becomes legally unenforceable, or is brought under an installment agreement or accepted Offer in Compromise, and we cover that in detail in getting your passport back after IRS certification.
Penalties on an unfiled, unpaid return can reach 47.5% of the tax, and interest compounds daily on top of that. The two penalties that drive the number:
| Charge | Rate | Cap | Authority |
|---|---|---|---|
| Failure to file | 5% of unpaid tax per month or part of a month | 25%, reached in 5 months | IRC 6651(a)(1) |
| Failure to pay | 0.5% per month or part of a month | 25% | IRC 6651(a)(2) |
| Failure to pay, after a notice of intent to levy | 1% per month | Same 25% cap | IRC 6651(d) |
| Failure to pay, while an installment agreement is in effect | 0.25% per month, if the return was filed on time | Same 25% cap | IRC 6651(h) |
| Interest | 7% per year for the third and fourth quarters of 2026, compounded daily, reset quarterly | None | IRC 6601, 6621, 6622 |
In any month both penalties apply, the failure-to-pay penalty reduces the failure-to-file penalty under IRC § 6651(c)(1), so the combined charge runs at 5% per month for the first five months and then drops to 0.5% per month until the failure-to-pay penalty hits its own cap. Here is what that does to a $20,000 balance on a return that was never filed and never paid, before interest:
| Time since the return was due | Failure-to-file penalty | Failure-to-pay penalty | Combined penalty |
|---|---|---|---|
| 5 months | 22.5% ($4,500) | 2.5% ($500) | 25% ($5,000) |
| 12 months | 22.5% ($4,500) | 6% ($1,200) | 28.5% ($5,700) |
| 24 months | 22.5% ($4,500) | 12% ($2,400) | 34.5% ($6,900) |
| 50 months and beyond | 22.5% ($4,500) | 25% ($5,000) | 47.5% ($9,500) |
The illustration assumes no extension, no fraud, and no abatement. Interest accrues on top of every figure in that table and does not stop when the penalties cap out.
The failure-to-file penalty is ten times the failure-to-pay penalty. Filing on time and paying late costs a fraction of not filing at all. Penalties can sometimes be reduced or removed for reasonable cause or under first-time abatement, which we cover in our chapter on reducing or eliminating IRS penalties. Current rates are published on the IRS failure to file penalty and quarterly interest rates pages.
The IRS generally has 10 years from the date a tax is assessed to collect it, under IRC § 6502. When that period expires, the debt is no longer legally enforceable, and the lien is extinguished.
The date is calculated per tax year, so a taxpayer with six unpaid years has six separate expiration dates. The collection period can also be suspended or extended by several common events, including a pending installment agreement request, a pending Offer in Compromise, a Collection Due Process request, bankruptcy, an innocent spouse claim, and time spent outside the United States for six months or more. Filing an application can affect the collection deadline, so understand that effect before choosing a resolution strategy. Our page on whether tax debt expires covers the calculation and the full list of suspending events.
Your account transcript shows the assessment date for each year, which is where the calculation starts.
File the return anyway, then pick a resolution path. Filing without paying costs 0.5% per month; not filing costs 5% per month, so filing is the cheapest decision available to you even when the money is not there.
| Option | What it does | Who it fits | Key limit |
|---|---|---|---|
| Short-term payment plan | Up to 180 days to pay in full, no setup fee | Balances under $100,000 that you can clear soon | Penalties and interest keep running |
| Installment agreement | Monthly payments over time, setup fee $29 to $178 depending on method | Taxpayers who cannot pay at once but can pay something monthly | Interest continues; a lien may still be filed |
| Guaranteed installment agreement | The IRS must accept it if you qualify | Income tax of $10,000 or less excluding penalties and interest, clean 5-year history | Must pay in full within 3 years |
| Simple payment plan | Streamlined agreement with no financial statement, no lien determination | Individuals owing $50,000 or less; businesses at $25,000 or $50,000 depending on tax type | Term runs to the collection expiration date |
| Partial payment installment agreement | Monthly payments that will not retire the full balance before it expires | Taxpayers with some monthly capacity but no path to full payment | Reviewed at least every 2 years and can be increased |
| Offer in Compromise | Settles the liability for less than the full amount | Taxpayers whose assets plus future income are genuinely less than the debt | $205 fee, 20% down on a lump-sum offer, 5 years of compliance after acceptance |
| Currently not collectible | Pauses active collection during financial hardship | Taxpayers who cannot meet basic living expenses and pay the IRS | Temporary and reviewed; penalties and interest continue to accrue |
| Bankruptcy | Can discharge older income tax in some cases | Taxpayers meeting the 3-year, 2-year, and 240-day tests | A filed lien survives discharge against pre-petition property |
A few of these deserve more than a row. The IRS now offers simple payment plans, and they matter because they skip the financial statement and the lien determination that make other agreements slow and invasive; the terms are on the IRS simple payment plans page. For the other agreement types, see the IRS’s own payment plans page for current terms and fees.
An Offer in Compromise is governed by IRC § 7122 and is available on three grounds under Treas. Reg. § 301.7122-1: doubt as to liability, doubt as to collectibility, and effective tax administration. The IRS calculates what it will accept from your reasonable collection potential, not from what you can afford to offer, and rejected offers commonly fail on that arithmetic. Our chapter on the IRS Offer in Compromise covers the calculation. If bankruptcy is on the table, see filing bankruptcy for tax debt.
Currently not collectible status is worth one caution. It stops collection, but it does not stop the meter. Interest continues under IRC § 6601 and compounds daily under IRC § 6622, and the failure-to-pay penalty keeps accruing to its cap under IRC § 6651(a)(2). What it does do is let the collection period keep running while you are protected, which is why hardship status and the 10-year expiration date are often considered together rather than separately.
Yes, but different forms of relief affect different parts of the debt. An accepted Offer in Compromise can settle qualifying tax liabilities for less than the full amount, penalty abatement can remove qualifying penalties, and expiration of the collection period can make an otherwise unpaid liability legally unenforceable. There is no general amnesty and no program that erases tax debt because paying it is inconvenient.
The advertising you probably heard is built on the Offer in Compromise, and it oversells it. The IRS accepts a minority of the offers it receives, and it evaluates them on a formula, so eligibility is a math question about your assets and income rather than a matter of presentation. Penalty relief is often larger in practice. Penalties on a long-neglected balance can run to nearly half the tax, and first-time abatement or reasonable cause relief can remove them without touching the underlying liability. Letting the collection period expire is not a strategy for everyone, but for a taxpayer with no assets and years already run off the clock, it can be the outcome that leaves the least on the table.
A Final Notice of Intent to Levy gives you 30 days to request a Collection Due Process hearing on Form 12153. Filing it stops levy action while the hearing is pending and preserves your right to have the U.S. Tax Court review the result.
That 30-day period is critical. Under IRC § 6330, a timely request suspends levy action and the collection period until the determination becomes final. Miss it, and you can still ask for an equivalent hearing within a year, but you generally lose Tax Court review.
Appeals can consider collection alternatives, spousal defenses, and whether the IRS followed its own procedures. It generally cannot revisit whether you owe the tax if you already had a chance to dispute it. Separately, the Collection Appeals Program handles lien and levy disputes faster but provides no judicial review.
One escalation worth naming, because the notice sequence does not announce it: if your case is assigned to a revenue officer, a person is now working your file in the field rather than a computer sending letters. A Letter 1058 is generated by a revenue officer, while an LT11 is generated by the automated collection system. The legal rights are identical, and the posture is not. Our chapter on dealing with IRS revenue officers covers what changes when that happens.
Michigan tax debt is a separate liability, collected by the Michigan Department of Treasury under separate law, with its own notices, deadlines, and appeal forums. Resolving your federal balance does nothing to your state balance.
| Issue | Federal | Michigan |
|---|---|---|
| Time to assess | Generally 3 years from filing | 4 years from the later of the due date or the filing date, with no limit at all if you never filed |
| Time to collect | 10 years from assessment | No administrative deadline. A 6-year limit applies only to a lawsuit by Treasury |
| State tax lien filing | Final notice of intent to levy, then 30 days | Generally 35 days from the date on the Final Bill for Taxes Due, subject to exceptions for accounts on a payment arrangement |
| Appeal deadline | 30 days to request a CDP hearing | 60 days to the Michigan Tax Tribunal or 90 days to the Court of Claims |
| Lien duration | Until the liability is satisfied or unenforceable | Until the liability is satisfied; Treasury does not publish a fixed expiration |
| Wage levy exemption | IRC 6334 formula | The same IRC 6334 amounts, adopted by reference in MCL 205.25(5)(a) |
| Settlement program | Offer in Compromise, IRC 7122 | Offer in Compromise, MCL 205.23a, available since January 1, 2015 |
Two Michigan points carry real consequences. The first is the collection deadline, and it is genuinely unsettled ground. There is no collection statute of limitations in the Michigan Revenue Act. The six-year period taxpayers hear about comes from MCL 600.5813, and Treasury’s own Revenue Administrative Bulletin 2019-21 reads it as limiting only civil suits, not liens, levies, or administrative offsets. A Michigan tax debt can therefore outlive a federal one by many years, and anyone counting on it to expire the way a federal debt does is counting on something the state does not concede.
The second is that Michigan will grant an Offer in Compromise on the strength of an accepted federal offer, but not automatically. MCL 205.23a(1)(c) makes a federal compromise a permitted ground, but Treasury runs its own review, may apply a different percentage, and requires a separate application with its own non-refundable deposit of $100 or 20% of the offer, whichever is greater. Michigan also files liens even on accounts current on an approved payment plan, a departure from IRS practice. Treasury’s collections and Offer in Compromise pages set out the current procedures. Our Michigan tax defense practice handles state and federal exposure together, because the two rarely arrive alone.
Find out where you stand before you decide anything. In order:
The one thing that reliably makes this worse is silence. Notices escalate on a schedule whether you open them or not, and the rights they carry expire on that same schedule.
If you are holding an IRS notice and are not sure what it authorizes or what deadline it started, that is the first question to answer. Ayar Law handles federal and Michigan tax collection matters from offices in Farmington Hills and Grand Rapids.
Call (248) 262-3400 or request a case review. Bring your notices.
This page is general information about federal and Michigan tax collection procedures and is current as of September 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Tax figures such as penalty thresholds, interest rates, and the passport certification amount change annually. Every case turns on its own facts, and prior results do not predict the outcome of any other matter. Consult a licensed attorney about your situation before acting.
