For years, politicians have been talking about simplifying the process of filing federal taxes. Still, despite the promises, the process continues to be complicated and stressful. But as bad as preparing taxes can be, it pales in comparison to the sinking sensation of receiving an IRS notification telling you that you’ve done something wrong.
The IRS reviews each tax return for accuracy and ensures that taxpayers have paid the amount they owe. When they find something wrong, they immediately send a letter alerting the taxpayer of the problem. Though several issues can arise, the four situations listed below are common reasons for the IRS to contact—and demand action from—you.
Failure to file a return at all
Every American is supposed to send in a tax return, whether you owe the government money or whether the government owes you. Failure to file can lead to you not getting the refund money you’re owed—you only have three years to get your paperwork in to get money back. If you’ve shortchanged the government, your failure to file can lead to fines that add an additional 25% of what you owe, charged over five months.
Failure to pay taxes
If you receive a form CP14 from the IRS, you have shortchanged the government on your taxes, and you owe them the difference. If you both fell short on your payment and didn’t file a return, you’re likely to have to pay penalties and interest too. If your debt is substantial, the agency will allow you to negotiate a Partial Payment Installment Agreement (PPIA) to break your payments into monthly installments.
Notification of tax levy
Failure to pay taxes can lead to a seizure of your property, known as a tax levy. The IRS does not descend upon your property unannounced: They will notify you using either the LT11, the CP504, the CP90, or the CP91 form.
Notification of tax lien
The IRS also can use a tax lien to collect unpaid tax debts. If you receive a Letter 3172, it means that the government is asserting its rights to your property or assets. This letter also gets sent to your creditors, as a tax lien allows the government to get in line for your assets ahead of all others.
If you receive one of these notifications from the IRS or any other form of correspondence regarding a mistake or monies owed, there’s no reason to panic. The best way to handle it is to speak to a qualified, experienced tax professional for guidance on your next steps. To learn more, contact us today.