When the IRS realizes that an individual has outstanding back taxes it begins its automated collection system. Understanding the basics of how this system works can allow individuals to delay the IRS to buy more time to get the money together to pay the back taxes owed, while slowing interest and penalties.

Once the automated collection system starts on an individual, they will begin receiving a series of notices from the IRS. These notices consist of an initial assessment for back taxes owed plus any penalties and interest. This assessment notice is then followed up by a series of CP-500 letters (CP 501-504). When these letters start they come off in a very nonthreatening manner, each additional letter you receive will become a bit more threatening. After your receive CP 504 you will receive a notice of federal tax lien (NFTL) and this is where IRS collections will begin. From first assessment letter to the notice of federal tax lien, this process typically takes place in a period of 4 to 6 months. It is best to settle back taxes before you receive a NFTL because this will hurt your credit and make many financial problems for you.

In order to gain more time from the IRS without receiving additional penalties is normally as simple as asking. When you receive your assessment letter or any of the following CP letters you can simply reply to the letter stating that you cannot pay at the current time and you would like an additional 45 days. You don't need to give excuses, just simply ask and the majority of the time they will grant it to you. When you get this 45 days, someone in the IRS will input a freeze code into the computer that will halt the collection system for 45 days. If you do not pay within this period it will begin up the collections where it left off before and you will receive another letter and you can do the same thing again. This time it is best to send in a little bit of money to show that you are trying to pay. By asking for extensions this will buy you several more months to pay off outstanding back taxes, sometimes because of the inefficiency of the IRS it can buy more than a year's time.

If you still find that you need more time in order to settle your back taxes, it is a good idea to set up a payment plan with the IRS. The most typical plan is an installment agreement. The IRS has many settlement methods they allow, if you want to settle your taxes for less than you owe it is best to consult a tax professional to see if you would qualify.