As some of us unfortunately find out, the IRS has enormous powers to enforce collection of past taxes, penalties, and interest. It needs no court order or judgment to seize just about anything you own. Usually the IRS only has to send you a "demand letter" before it does anything. In some cases, it doesn't have to give any warning at all.

As bad as this may seem, there are protections for taxpayers. Payment terms can be negotiated and action can be temporarily suspended if circumstances warrant. However, if you are behind on payroll taxes, the IRS will not cut you much slack. Withholdings from employees' paychecks are funds that the employer has a fiduciary duty to remit. The IRS is merciless in their collection of these -- even to the point of holding the principals of a business personally liable.

If you are having financial difficulties and can't pay your taxes, call the IRS. When you call, be prepared for numerous busy signals. When you finally get an answer, you will have to negotiate your way through the maze of the automated attendant.

While the IRS is notoriously slow in reacting to unpaid taxes, once the process starts it is relentless. Always take notes on the dates, times, contents, participants in any conversations you have with the agency.

If no agreement can be reached on the payment, the IRS will institute "enforced collection." This results in a tax lien or levy.

A lien is a legal charge against your property. It is sometimes reported in local newspapers and is filed with your local credit bureau. This is not something you want on your credit report since it means other creditors will probably not extend any additional credit to you. It can generally only be removed by paying what is owed to the IRS.

A levy, on the other hand, takes your property. This occurs when the IRS physically seizes property to satisfy what you owe. It may also issue a written demand to a third party (such as your bank) that hold any property you own. Filing of a lien does not necessarily precede a levy; the IRS generally will not impose a levy unless you refuse to work with them or you can't be located.

The IRS usually levies bank accounts first, then goes after wages and other sources of income (usually reported on Form 1099). Tax refunds are taken automatically. Other properties or funds held by third parties can also be taken. Even your home and pension plan are not exempt, although taking these is rare.

The IRS cannot take your family's wardrobe, personal effects, and the tools of your trade or part of your wages (as based on IRS tables). In all of these cases, the dollar amounts that can't be taken are nominal. The IRS can seize the assets of your business or assets in your home only with your permission or a court order.

A lien can be removed by paying at least part of what you owe, with a payment plan worked out for the remainder. Be open and honest with the IRS and negotiate with them in good faith. Never allow your emotions to dictate your actions.

IRS Publication 594, Understanding the Collection Process, contains a short, fairly easy to understand description of IRS collection procedures.