Tax debt and collections
Tax Debt Relief Attorney — IRS and Illinois Back Taxes
You owe more than you can pay, and the letters are getting more serious. There are six ways an IRS balance ends, and each has rules, forms and a deadline.
Firm particulars
- Attorney
- Hani H. Khatib, Attorney at Law · CPA · LL.M. (Taxation)
- Office
- 6600 W College Dr, Ste 207, Palos Heights, IL 60463
- Hours
- Monday to Friday, 9:00 a.m. to 5:00 p.m.
- Telephone
- (708) 722-2222
- info@khatiblaw.com
- Accreditation
- BBB Accredited since April 2022 · A+
Start here
Is this you?
A tax debt attorney, sometimes advertised as a tax relief attorney or a tax resolution attorney, is hired to do two things: stop the collection machinery long enough to think, and then choose the ending that fits your finances. Hani H. Khatib, Attorney at Law · CPA · LL.M. (Taxation), handles IRS and Illinois tax debt from the firm's office in Palos Heights for clients across Cook County and the rest of Illinois, as one part of a broader tax practice. The accounting half of the work (the financial statement, the collection-potential calculation) and the legal half (the hearing request, the appeal, the protest) are done by the same person.
What follows is the honest version of how IRS tax debt is resolved. It is longer than an advertisement because the real options have rules.
You filed but could not pay, and the balance has grown with penalties and interest for two or three years.
A CP504 or LT11 notice arrived and the words "intent to levy" are on it.
Your employer received a wage levy, or your bank froze your account.
You already have a payment plan and defaulted on it, or the plan is unaffordable.
An IRS audit or the Illinois Department of Revenue produced a bill you cannot pay in one payment.
Every IRS collection case resolves in one of these. The firm's job is to work out which one you qualify for, which one is cheapest over time, and in what order to ask.
| Option | Fits when | What it takes |
|---|---|---|
| Full payment | you can borrow or liquidate at less than the IRS charges | payment; then a lien release within 30 days |
| Installment agreement | you can pay the balance in monthly amounts before the statute expires | online application if you owe $50,000 or less; Form 9465 or a financial statement otherwise |
| Partial-payment installment agreement | you can pay something each month, but not the full balance before the statute runs | Form 433-A or 433-F financial statement; periodic review |
| Offer in compromise | what the IRS could collect from your assets and future income is less than the balance | Form 656, Form 433-A (OIC) or 433-B (OIC), $205 fee, initial payment |
| Currently not collectible | you cannot pay anything now without hardship | financial statement; penalties and interest continue; reviewed later |
| Bankruptcy | older income-tax debt that meets strict timing rules | bankruptcy counsel; the tax rules are only part of the decision |
The collection statute sits underneath all six. The IRS generally has ten years from assessment to collect (26 U.S.C. 6502), and the Collection Statute Expiration Date for each year appears on your account transcript. A partial-payment plan or CNC status for a debt with two years left is a very different decision from the same plan for a debt with nine years left.
Most people who owe the IRS end up on a payment plan. The details, as published by the IRS:
- Short-term plan (180 days or less): no setup fee; available online if you owe less than $100,000.
- Long-term plan (an installment agreement): available online if you owe $50,000 or less in combined tax, penalties and interest and have filed every required return. The IRS calls this a simple payment plan; no financial statement is required and most taxpayers get up to ten years, bounded by the collection statute. Setup fees are $29 online with direct debit or $69 online without it, and $107 or $178 if you apply by phone, mail or in person. Low-income taxpayers pay nothing with direct debit or $43 otherwise.
- Larger balances or business debts: a financial statement (Form 433-A, 433-B or 433-F) and a negotiated monthly amount. Businesses apply by phone, at a Taxpayer Assistance Center or through the assigned revenue officer, since the online application is for individuals. A business with trust-fund (payroll) debt of $25,000 or less may qualify for a simple plan without a financial statement.
While an approved plan is in force the failure-to-pay penalty drops from 0.5 percent a month to 0.25 percent. Miss a payment, fail to file a later return or fall behind on estimated tax and the plan defaults, so the engagement does not end when the agreement is signed.
An offer in compromise is a contract: the IRS accepts less than the full balance because that is the most it could reasonably collect. The calculation is mechanical. The IRS adds the equity in your assets to a multiple of your monthly disposable income (income minus allowable living expenses) and compares the total to the balance. If the total is lower, an offer in that amount has a chance; if it is higher, the offer will be rejected no matter how it is written.
The mechanics are fixed by the IRS. Every return must be filed and estimated payments current, with no open bankruptcy. The package is Form 656 plus the OIC financial statement and a $205 application fee. A lump-sum offer sends 20 percent of the offered amount with the application and pays the rest in five or fewer payments after acceptance; a periodic-payment offer makes monthly payments while it is pending. If the IRS does not decide within two years of receiving the offer, it is deemed accepted. Low-income taxpayers skip the fee and the initial payment.
What the ads leave out: the IRS rejects most offers (in fiscal 2025 taxpayers proposed 38,797 offers and the IRS accepted 5,464, about one in seven, per the IRS Data Book), usually because the taxpayer's own numbers show more collection potential than the offer. The "Fresh Start" those ads name is not a program you apply to; our article on the IRS Fresh Start program explains what it changed.
The responsible way to use the tool is to run the calculation first. If the numbers do not work, the firm will tell you so and move to the option that does, rather than filing an offer that buys a year of delay and ends in rejection.
When your necessary living expenses consume your income, the IRS can mark the account currently not collectible. Collection stops, but the debt is not forgiven, penalties and interest keep accruing, a Notice of Federal Tax Lien may still be filed, and the IRS may review your finances later and resume collection if your ability to pay improves.
Because the collection statute keeps running throughout, CNC status is often the whole strategy for a retiree on a fixed income whose debt has three years left. Our article on currently-not-collectible status explains how it is requested and what the later review looks like.
A lien is the government's claim on everything you own. It arises automatically after assessment, a notice and demand, and non-payment. The IRS makes it public by filing a Notice of Federal Tax Lien, which lenders and title companies see.
A lien is released within 30 days of full payment. Short of that, the IRS can discharge a specific property from the lien so a sale can close (Publication 783), subordinate the lien so a refinance can proceed (Publication 784), or withdraw the public notice (Form 12277). Withdrawal is available to taxpayers who owe $25,000 or less, are on a direct-debit installment agreement that will pay the balance within 60 months or before the statute expires, and have made the required payments.
A levy takes property. Before levying, the IRS must assess the tax, send a notice and demand, and send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before acting. A bank levy attaches to the balance on the day it is served; the bank holds the money for 21 days, which is the window to get it released, then sends it to the IRS.
A wage levy is continuous and takes everything above a modest exempt amount until released. The IRS releases a levy when it was issued in error, when it causes immediate economic hardship, or when you enter a collection alternative. The practical sequence for a client with a wage levy is: sign Form 2848, get the levy released on hardship or on a proposed plan, then finish the plan.
The IRS collection notices escalate in a fixed sequence, and which one you are holding tells us how much time there is. CP14 and the reminder notices state the balance, and CP504 warns that the IRS intends to levy your state refund. LT11 or Letter 1058, the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, is the one that opens your appeal rights.
From the date on that final notice you have 30 days to file Form 12153 for a Collection Due Process hearing, which stops most levies, suspends the collection statute and preserves review by the U.S. Tax Court; Letter 3172 opens the same right when a lien is filed. Each notice, and what the "equivalent hearing" does if you miss the 30 days, is explained in our article on IRS collection notices: CP504, LT11 and Letter 1058.
Two further consequences follow from an unresolved balance. The failure-to-pay penalty rises to 1 percent a month once a notice of intent to levy is issued and not paid within ten days. A seriously delinquent debt (more than $66,000 in 2026, adjusted yearly) is reported to the State Department, which may deny a passport application or revoke a passport.
Penalties are usually a third or more of an old balance, and two routes remove them. First-time abatement clears the failure-to-file, failure-to-pay and failure-to-deposit penalties for one year if you were penalty-free for the prior three years and are current on filing and payment. Reasonable-cause relief applies to any year in which illness, disaster, bad advice relied on in good faith or similar facts prevented compliance. Who qualifies and how to ask are in our article on first-time penalty abatement; interest is removed only when it resulted from an IRS error or delay.
Owing the Illinois Department of Revenue is not the same as owing the IRS. The Department collects faster, with its own wage and bank levies, a long-lived tax lien and license action, and its payment plan and its Board of Appeals compromise run on their own forms and deadlines. The Illinois Department of Revenue page sets out those procedures and the 60-day protest deadline, and our article on the Department's audit powers explains the authority behind them.
The difference
Why hire a tax debt attorney who is also a CPA
The financial statement decides the case
Form 433-A is an accounting document: income, allowable expenses, asset equity. A CPA prepares it so that every allowable expense is claimed and every figure can be supported; an attorney argues from it.
Unfiled years come first
No installment agreement or offer is approved until every required return is filed. The firm determines which years must be filed and reviews the returns before they go in, so the compliance step and the negotiation step are one project. See unfiled tax returns.
The hearing is a legal proceeding
A Collection Due Process hearing and any Tax Court review that follows are governed by procedural rules. An audit that produced the balance may still be open to challenge; see IRS audit representation.
Process
How a tax debt case runs
The consultation
Usually within the first week · about an hour · in person or by phone
Attorney Hani Khatib reviews the notices and your rough finances and tells you which of the six endings is realistic.
Form 2848 and the transcripts
Weeks one to three · after the IRS processes the form
The firm pulls your account transcripts to confirm the balance and the collection statute dates. If a levy is active, the release request goes in first.
The proposal
Usually a few months for a payment plan · an offer often takes the IRS six months or more
The financial statement is built, the proposal is submitted and the firm handles the IRS until the agreement or determination is in writing.
The engagement does not end when the agreement is signed: a later missed payment or unfiled return defaults it, so the engagement letter also says what you must do to keep it in force.
Request a consultation
Talk it through with the attorney.
Tell us what you are facing in a sentence or two. We will tell you what the first meeting involves, and whether there is a charge for it, before you commit to anything.
Related
Related services
Unfiled returns
What happens if I have not filed taxes in years?
Years of unfiled returns feel like a wall. They are a list: work out which years actually have to be filed, pull the records the IRS already holds, file in the right order, then deal with whatever balance remains.
Back returns, penalties, refund windowsIRS audits
What should I do when I receive an IRS audit letter?
An audit letter is a request for proof, with a deadline attached. How you answer it decides whether the audit ends in a no-change letter or a bill.
Correspondence, office and field auditsIllinois Department of Revenue
What happens if I owe the Illinois Department of Revenue?
The Illinois Department of Revenue has its own audit bureau, its own notices, its own 60-day protest clock and its own tribunal. None of it works like the IRS.
Audits, protests and the Tax Tribunal
Questions
Questions we are asked
Can tax debt be settled for less than I owe?
Sometimes, through an offer in compromise. The IRS accepts an offer when the amount offered equals or exceeds what it calculates it could collect from your assets and future income before the statute expires. An offer requires every return to be filed, current estimated payments, Form 656 with Form 433-A (OIC) or 433-B (OIC), a $205 application fee and, for a lump-sum offer, 20 percent of the offer amount up front. If the IRS does not decide within two years the offer is deemed accepted. Most offers are rejected (in fiscal 2025 taxpayers proposed 38,797 offers and the IRS accepted 5,464, about one in seven, per the IRS Data Book), so the realistic calculation comes before the application, not after.
What are my options if I owe the IRS and cannot pay?
Six, in rough order of how often they fit: pay in full (sometimes by borrowing at a lower rate than IRS penalties and interest); a long-term installment agreement; a partial-payment installment agreement that pays what you can afford until the collection statute runs out; an offer in compromise that settles the debt for a lump sum or short-term payments; currently-not-collectible status that pauses collection while you cannot pay; and, for some older income-tax debts, bankruptcy. Which one applies depends on your income, assets, expenses and how long the IRS has left to collect.
What is the IRS Fresh Start program?
Fresh Start is the name the IRS gave to a set of policy changes in 2011 and 2012 that made payment plans and offers in compromise easier to get: a higher balance before a lien is filed, streamlined installment agreements without a full financial statement, lien withdrawal for taxpayers on direct-debit plans, and more realistic offer calculations. It is not a separate program you apply to, there is no Fresh Start application, and nobody is 'pre-qualified' for it. Companies that advertise it are selling the ordinary installment agreement and offer in compromise described on this page; our article on the IRS Fresh Start program explains what it changed.
How long can the IRS collect back taxes?
Generally ten years from the date the tax was assessed (26 U.S.C. 6502). That date is on your account transcript. The clock stops while an installment-agreement request or offer in compromise is pending, during bankruptcy, while a Collection Due Process hearing is open, and while you live outside the United States for six months or more. Each of those adds time back on. For some taxpayers the right strategy is a payment plan that simply runs the clock out; for others the clock has years left and a different tool fits.
What is currently-not-collectible status?
A determination by the IRS that you cannot pay anything now without hardship. Collection activity stops, but the debt is not forgiven, penalties and interest keep running, a Notice of Federal Tax Lien may still be filed, and the IRS will review your finances later and resume collection if your income improves. The collection statute keeps running during CNC status, so for some taxpayers it is the path to the debt expiring.
Will the IRS garnish my wages or levy my bank account?
It can, after it has assessed the tax, sent a notice and demand, and sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days earlier. A bank levy freezes the funds in the account on that day; the bank holds them for 21 days and then sends them to the IRS. A wage levy is continuous until released, with only a small exempt amount. Both are released when you enter an installment agreement or show immediate economic hardship, which is why the 30-day window after the final notice matters.
What is the difference between a tax lien and a levy?
A lien is a claim; a levy is a seizure. The federal tax lien arises automatically when you do not pay after notice and demand. The IRS may make it public by filing a Notice of Federal Tax Lien in the county records, which affects your credit and any sale or refinance. A levy actually takes property: wages, bank balances, accounts receivable or, rarely, a house. Liens are released within 30 days of full payment and can be discharged from a specific property, subordinated to a lender, or withdrawn if you qualify.
How do I stop the IRS letters?
By putting the account in one of the statuses above. Once an installment agreement, offer or CNC determination is in place, the collection notices stop, though annual statements continue. If you have signed Form 2848, the letters come to the firm first. Ignoring them is the one option that makes everything else harder, because each notice is a step toward a levy.
Your attorney
Hani H. Khatib
Attorney at Law · CPA · LL.M. (Taxation)
Founder and managing attorney of Khatib Law LLC, established in Palos Heights in 2017. An attorney licensed in Illinois and a Certified Public Accountant, he concentrates his practice in estate planning, real estate, tax controversy and small-business matters. About Hani Khatib
Request a consultation
Tell us what you are facing.
A sentence or two is enough to start. We will tell you what the first meeting involves, and whether there is a charge for it, before you commit to anything.
(708) 722-2222
Monday to Friday, 9:00 a.m. to 5:00 p.m. · 6600 W College Dr, Ste 207, Palos Heights
What happens next
Your message goes to the firm’s office, not a call centre.
If you mention a deadline, it is read first.
We run a conflicts check and, if we can help, call or email you to set a time.
We confirm the kind of matter and what the first meeting involves, including whether there is a charge for it.
If we go forward, you receive a written engagement letter.
Scope and fee basis in writing before any work begins. Please do not email documents until we have confirmed an engagement in writing.
What to bring to the first meeting
- The most recent IRS notices, every page, with their dates: CP14, CP504, LT11 or Letter 1058 if you have one.
- The last two returns you filed, or a note of which years were not filed.
- A rough monthly budget: pay stubs or profit figures, rent or mortgage, car, insurance, and the other bills you pay.
- Recent bank statements, and any levy, lien or payment-plan paperwork the IRS or Illinois has sent.