How The IN Department Of Revenue Enforces Tax Collection

Once a demand is made, the Indiana Department of Revenue (“DOR”) expects a reply in 10 days.  DOR has very powerful options at that point: if the taxpayer has not responded, DOR can cause liens to be placed on the property of the corporation or  individual. Of course, this affects credit ratings and the ability to borrow money.  The ability to sell titled properties is also hampered.  In short, a bad situation will rapidly get worse.

Many interesting possibilities are provided for by Indiana laws, specifically Indiana Code 6–8.1–8 –1 and following sections up to 6–8.1– 8–17.  These are the collection provisions for “trust fund” taxes in the Indiana code.  The first enforcement action from the Indiana Department of Revenue is the issuance of a demand notice. If the demand is not paid within 10 days, the Department of Revenue may issue a tax warrant, and add 10% to the unpaid tax as a collection fee. That warrant may be filed with the circuit court clerk in the county where property is owned, 20 days after the demand is mailed to the taxpayer.  It becomes an enforceable judgment at that point.

These “automatic judgments” can be entered without a trial before the circuit court.  This is a streamlined procedure that allows the state to garner a judgment fairly quickly. And these judgments are valid for 10 years from the date that judgment is filed  The judgment may be “renewed” for an additional 10 years, simply by filing an “alias” tax warrant at the end of the initial judgment’s 10 year effective period.

These tax judgments may be enforced by ordinary means, such as foreclosure and sale of real or personal property, with that sale by the sheriff or an auctioneer. Further, the sheriff keeps a part of the additional collection fee of 10%.  Thus, he has an incentive to conduct sales of property where warrants have been issued.

In addition, the state will often employ a collection agency to collect on unsatisfied tax warrants. In these cases, additional penalties may be assessed against the taxpayer, for the cost of private collection.  A restraining order may be issued by the courts of the county where the taxpayer does business, to restrain him from conducting business. In addition, the state may ask that a receiver be appointed, to manage the business so that those taxes can be paid over to the state.

The most significant power that the state has regarding a tax assessment is the mentioned automatic enforcement.  Note that this is without the normal legal protections of serving a complaint, waiting for a trial before the Circuit Court judge, and then obtaining a judgment.  The “normal” process for collecting on debt takes a number of months, and allows a full hearing of the facts before an impartial judge, before any lien or garnishment.  DOR can bypass that normal process.

The department may, without judicial proceedings, place a lien on monies of the taxpayer which are held by a financial institution, and require that the financial institution place a 60 day hold on funds. This includes not only funds the taxpayer has on deposit at that time, but also those that he subsequently deposits. In addition, DOR can garnish his wages by sending notice to his employer, without judicial proceedings as are normally required for garnishment. Further, the DOR can lien and sell property, or take it to a storage facility and require a bond before returning the goods.  The DOR can initiate a debtor’s exam, to inquire (under oath) about all assets that the debtor owns. Obviously, all of these requirements under the law are very powerful investigation tools for the DOR.  Of course, as the situation becomes rather grave, the use of seasoned counsel is recommended.