5 Common IRS Notices for Tax Debt Collection

If you fail to pay your taxes when you file your return, the IRS will send you a notice, also known as a tax bill for the amount owed. The tax notice is the first step in the collection process. The collection process will continue until you have satisfied the debt or when the IRS can no longer legally contact you. The process starts with preliminary notices, however if action is not taken quickly, the IRS will become more aggressive in their actions to receive payment.

If you receive a notice stating you owe money, the first thing you should do is check the return address to see if the notice came from the IRS or another agency. If the notice comes directly from the IRS, it will include detailed instructions on how to respond as well as a way to get more information. If the notice is from another agency, such as your state tax department, you may need to call for further instructions. Finally, if the letter is from the Department of Treasury Bureau of the Fiscal Service, it often means the IRS took part of your tax refund to cover another, non-IRS related debt.

Once you know where your notice came from, the next step is to understand your notice. Taxpayers commonly receive notices for one of the following reasons.

1. Informing Taxpayers

The first type of notice informs taxpayers about their debt. This is typically a letter from the IRS and includes the amount owed, the due date and the payment options. If you receive this type of notice and you’re able to pay the tax debt in full, you will not incur an initial penalty. However, after the due date marked on the notice, the IRS will start adding interest every month.

When you face large tax liabilities, your interest and penalties can significantly increase the amount you owe. On top of your back taxes, which may already be difficult to pay, penalties are added for nonpayment or underpayment, failure to file timely returns and failure to make payroll tax deposits, among other reasons. Interest then accrues on any unpaid taxes as well as the penalties themselves. In order to avoid penalties and interest, address your tax notice as soon as it arrives. If you can’t make the payment in full, consider hiring a tax resolution professional to help you apply for tax relief such as an installment agreement and offer-in-compromise.

2. Threat of a Tax Lien

The next type of notice the IRS sends is the threat of issuing a tax lien if the debt is not paid. This letter warns taxpayers that if the tax debt is not paid, the IRS may put a lien on their property. If the government places a lien on your property, they have the right to all of your property including any property or rights you acquire thereafter.

If you receive a letter threatening a lien, you need to address this issue immediately. Specific actions can be taken to prevent a lien from being filed, but the key is to complete these actions in a timely manner. In certain circumstances, you may eligible for a payment plan or tax settlement. Regardless of your eligibility, addressing this notice from the IRS as quickly as possible is extremely important.

3. Tax Refund to Fulfill Debt

The next type of notification tells the taxpayer that the IRS is planning to use all or part of their tax refund to pay their tax debt. Dependent upon the size of the refund, this may fulfill your debt or at least reduce it partially. If you receive this notification and you have specific questions, you can check the IRS website for more information or contact the IRS by phone. If you choose to make contact by phone, it is best to contact the specific office or employee that issued the correspondence to you. Be sure to have your taxpayer identification number or the notice/letter number when you contact the IRS.

4. Seizure of Property or Assets Warning

The fourth type of  notice the IRS sends is to warn again the seizure of your property or assets. When you receive this notice, you generally have ten days to resolve the tax debt. If you do not resolve the debt within the timeframe, the IRS may issue a Notice of Federal Tax Lien as well as take other measures to secure payment of debt.

While seizures of assets are neither common nor practical, if the IRS does takes these measures, it can be devastating. Seizures are often a last resort by the IRS and if such an action  is taken, the IRS may pursue any and all of your real and personal property. This also includes intangible property such as goodwill or rights to property.

If you receive this type of notification, it’s best to contact a tax resolution specialist. A tax resolution professional will work with you and the IRS to resolve the tax dispute without an actual seizure. They will conduct  a financial analysis of your ability to pay back the debt without the need for a seizure and communicate that plan to the IRS. They will also work with you to ensure you are never in this situation again.

5. Right to Appeal Tax Levy 

The final most common notice is the right to appeal a tax levy. This notice tells taxpayers that the IRS has placed a levy on their bank accounts or assets and that you have the right to appeal it. A levy is the IRS’s way of getting the money you owe by mailing legal demands  to your bank, accounts receivable or retirement account. If the IRS contacts your employer, it is known as a wage garnishment.

The IRS has no restrictions when it comes to levies. They can be issued on bank accounts, automobiles, stocks, bonds, boats, pension checks, payments and even Social Security checks. Levies do serious damage to the taxpayer, so when a levy is issued, you have the right to appeal it.

Some levies can be lifted without the need for an appeal; however, if an appeal is necessary, you will need to submit a formal appeal and state your case with the Appeals Division. You can communicate with the IRS to appeal your levy or you can hire a tax professional to represent your case. If you receive notification of a tax levy, it may be prudent to start the appeals process immediately.

Fresh Start

If you receive any of the above notices from the IRS, the goal is to address these issues right away, get on good terms with the IRS and get a fresh start. As former IRS Officers and IRS Auditors, we know how the IRS works and how to handle each of the above notices. Request a FREE and confidential consultation with our ex-IRS agents by calling (949) 260-4770.

Not only are we licensed Tax Relief Specialists, we are also former Senior IRS Agents that now serve the best interests of taxpayers like you – all we do is handle IRS Tax Relief matters, all day, every day. Speak to us for FREE at (949) 260-4770.