Overview

The IRS doesn’t use one single line-item called “collection costs” in every case. Instead, unpaid taxes grow through statutory components—interest and penalties—and may also include administrative or third‑party charges tied to specific collection actions (liens, levies, private collection agencies, legal proceedings). Interest and most penalties are set by statute and continue to accrue until the tax is paid, assessed as currently due, or otherwise legally resolved (for example, by Offer in Compromise or expiration of the collection statute).

What commonly counts as collection costs

  • Interest: statutory interest accrues on unpaid tax from the original due date until paid (see IRS guidance on interest and penalties).
  • Failure‑to‑pay and other penalties: assessed under the Internal Revenue Code; some penalties are abatable for reasonable cause or under first‑time abatement rules (IRS: Penalty Relief).
  • Administrative costs tied to particular actions: postage, processing, and the internal costs of preparing and serving notices.
  • Private collection agency (PCA) fees: when the IRS assigns older receivables to a PCA, the PCA may add legally authorized collection charges; taxpayers get notice before assignment (IRS: Private Collection Agencies).
  • Court or legal costs where the government brings litigation to enforce collection (rare and fact‑specific).

Note: Unlike some private creditors, the IRS generally cannot add arbitrary “collection attorney fees” to ordinary tax assessments unless incurred through court actions or authorized statutory procedures.

Key limits and timing

  • Statute of limitations on collection: generally the IRS has 10 years from assessment to collect (the Collection Statute Expiration Date, CSED). Certain actions (bankruptcy, installment agreements, offers, or taxpayer‑initiated delays) can extend or suspend that period. (IRS: Understanding Your IRS Notice; see IRS guidance on CSED.)

When collection costs can be reduced or eliminated

1) Pay or partially pay early

  • The fastest way to stop interest and stop additional penalties is to pay the liability. Even partial payments reduce the balance on which interest and failure‑to‑pay penalties accrue.

2) Use an installment agreement or Fresh Start options

3) Request penalty abatement

  • The IRS grants penalty relief for reasonable cause (serious illness, natural disaster, reliance on incorrect professional advice, etc.) and via the First‑Time Penalty Abatement program when eligibility requirements are met. Successful abatement reduces the penalty portion of collection costs (IRS: Penalty Relief).

4) Apply for an Offer in Compromise (OIC)

5) Ask for Currently Not Collectible (CNC) status or a temporary hardship hold

  • If you can show you cannot pay basic living expenses, the IRS may place your account in CNC, which suspends enforced collection. Interest and some penalties generally continue to accrue, but collection activity and some administrative costs stop while CNC is in effect.

6) Use appeals and Collection Due Process (CDP)

  • If you receive a levy notice, timely request a CDP hearing to challenge the underlying liability or propose alternatives; a successful appeal can prevent further collection costs tied to levies.

How to make relief requests effective (practical steps)

  • Respond quickly to notices—many rights (including CDP) have strict deadlines, often 30 days.
  • Document reasonable cause with clear evidence: medical records, job‑loss documentation, disaster declarations, or proof of reliance on a tax professional.
  • If you propose a payment plan or OIC, prepare a realistic budget and supporting documentation (pay stubs, bank statements, and a full accounting of necessary living expenses).
  • Keep records of all communications, confirmation numbers, and copies of forms submitted.

Common misconceptions

  • Myth: “Once the IRS files a lien or levies, collection costs are fixed and unavoidable.” Reality: timely negotiation (installment agreement, OIC, penalty abatement, CNC) or appeals can prevent or reduce the added administrative costs and stop further escalation.
  • Myth: “The IRS will never reduce collection costs.” Reality: penalties can be abated, offers can reduce total liability, and hardship status can halt enforcement activity.

When to get professional help

In my practice, taxpayers who get professional help early—before enforcement escalates—save the most. A qualified tax attorney, enrolled agent, or CPA can help prepare abatement requests, assemble an OIC, or negotiate installment agreements and appeals. If your case involves litigation or court‑ordered collection, get counsel immediately.

Authoritative sources

Professional disclaimer

This article is educational and not individualized legal or tax advice. Tax situations vary; consult a qualified tax professional for guidance tailored to your facts.