Why You Should Never Ignore Notices from the IRS
Ignoring delinquent tax and penalty notices from the IRS can result in substantial penalties, compounding interest, and the loss of property. Facing tax problems head-on, understanding why a penalty was assessed, and becoming familiar with IRS tax collections procedures can help taxpayers avoid paying money that is not owed.
Understanding IRS Notices and Collections Procedures
The purpose of a first notice from the IRS is to inform the taxpayer that there is an issue with his or her taxes. It could be a notice of intent to perform an audit and/or request for information. A first notice may also assert that there was a problem with past tax return filings and that back taxes are owed.
The earlier the tax problem is addressed, the better. Tax debts will continue to increase from additional penalties and compounding interest. The burden rests on the taxpayer to prove that he or she does not owe what the IRS claims. When IRS notices are ignored, the agency will usually take action to collect the money it is owed, including:
- Federal tax lien
- Seizure of assets
- Bank and asset levies
- Wage garnishment
- Civil legal action
- Revocation of passport
Dealing with a Demand Notice from the IRS
An IRS demand for information or payment of back taxes should trigger the taxpayer to take immediate action. If the taxpayer fails to respond, attempts to collect will increase in severity. Whenever possible, the taxpayer should pay legitimate debts right away to avoid extra penalties and interest.
When immediate payment is not possible, other options could stop collection actions.
It may be possible to work out an installment agreement with the IRS. This would involve making monthly payments to pay off the debt.
Offer in Compromise
An offer in compromise is when the taxpayer proposes to pay a lesser amount to the IRS. Only 40% of OICs are accepted by the IRS. To obtain an OIC, the taxpayer must convince the IRS he or she is unable to pay the full amount owed.
If the taxpayer is experiencing financial hardship and cannot make installment payments or qualify for an OIC, it may be possible to request a delayed collection. If the IRS approves, the taxpayer’s account would be marked currently not collectible. Interest and penalties will continue to accrue until the debt is paid or the statute of limitations for collections expires.