Encountering issues with the IRS is a situation that none of us wishes to face, and understandably so. When it comes to taxation, one issue that can lead to significant complications is neglecting IRS correspondence, particularly by ignoring collection notices.
So what is an IRS collection notice? And what problems can occur if you ignore this notice?
What Is an IRS Collection Notice?
An IRS collection notice is a formal letter notifying taxpayers of outstanding taxes, including associated penalties and interest, and providing relevant details, such as the payment deadline and potential consequences of nonpayment.
This notice constitutes the initial stage of the IRS collection process, intended to inform the taxpayer and formally demand payment of unpaid taxes.
Types of IRS Collection Notices You Might Receive
There are different types of IRS notices, with the latter becoming more urgent.
CP14 is the first letter sent, informing taxpayers of the balance due and notifying them of the payment deadline, which is typically due within 21 days. CP14 is sent by the IRS directly after it has processed and assessed your return.
CP501/503 is a reminder notice sent to those whose debt remains unpaid and who have failed to respond to the first notice (CP14). CP503 serves as the second reminder letter, more urgent in nature, and includes a warning of the consequences should the taxpayer continue to ignore the notices.
CP504 is the formal notice with serious urgency, notifying of the intent to levy. In this letter, the IRS warns taxpayers that it intends to legally seize certain assets if the debt is not paid immediately.
Letter 11/LT11 or Letter 1058, also known as the Final Notice of Intent to Levy and Right to a Hearing, gives taxpayers the last chance to satisfy their debts.
Failing to do so will prompt the IRS to proceed with broader levies, including wage garnishment, bank account levies, and liens on property. The notice also informs taxpayers that they have 30 days to request a Collection Due Process (CDP) hearing with IRS Appeals.
Why Did I Receive an IRS Collection Notice?
The IRS sends a collection notice for a variety of reasons, but in general, it stems from failure to pay the full amount due on your tax returns. When the IRS processes your tax return and finds out the remaining balance due or discrepancies, they are required by law to send a collection notice within 60 days of assessing tax liability.
Here are other common reasons for receiving an IRS collection notice:
Unpaid taxes on tax returns: When the IRS finds out there is a balance due on your tax return and hasn’t been paid, or fails to pay penalties and interests, the IRS will send the first collection notice.
Late filing: Failing to file on time will trigger an IRS notice, even if you have no tax debt. Moreover, the failure-to-file penalty will be imposed. If you owe taxes and file late, failure-to-pay penalties will also be applied.
Underpayment of estimated tax payments: Estimated tax payments are a method to pay tax on income not subject to withholding, such as earnings from self-employment, investments, and other non-wage income. Failing to pay may result in an underpayment penalty, which triggers a balance due notice.
What Happens If You Ignore an IRS Collection Notice?
Short-Term Consequences of Ignoring the IRS
If you ignore an IRS collection notice, you risk accruing penalties and interest that grow daily on the balance due, creating a larger total debt.
Receiving IRS notices, including the Final Notice of Intent to Levy, also opens the real possibility of legal asset seizures and liens, which are considered complex tax matters.
Long-Term Consequences
Continuing to ignore an IRS collection notice can have severe long-term consequences, such as the government legally seizing your property, garnishing your wages, and losing appeal rights (if the 30-day window is missed).
All these instances will lead to extreme financial hardship and considerable stress.
IRS Tools the Government Can Use If You Don’t Respond
Federal Tax Liens
A federal tax lien is the government’s legal claim against your assets. The lien attaches to what you currently own and to any property acquired later. This includes everything from property and bank accounts to future assets.
The government issues a public Notice of Federal Tax Lien (NFTL) to alert the public and creditors of the federal lien. When this is issued, taxpayers may face potential hardship, including credit damage (making it hard to get loans, mortgages, etc.), difficulty selling or refinancing property, and impacts on business accounts receivable and operations.
IRS Levies and Wage Garnishments
A levy is a legal seizure of property and assets to satisfy tax debts.
Unlike tax liens, which are the government’s legal claims on assets, a levy is the IRS’s actual collection action.
Both liens and levies can be highly financially detrimental, with mounting penalties and interest, creating an overall financial burden, and, legally, they can negatively affect a public record, further complicating the matter.
How Quickly Can the IRS Take Action If You Ignore Them?
Any legal actions the IRS takes follow its own procedures. In other words, actions will not be sudden or instantaneous. Taxpayers will be contacted and informed of the situation, and given opportunities to resolve it before any further action is taken.
In general, the collection action from the first notice sent to the potential levy takes around 4-8 months.
The IRS will first send the notice of due payment (CP-14) after it has assessed tax returns.
The first reminder notice (CP-501) can be sent in week 5-10.
The second reminder, which is more urgent in nature, can be received in week 10-15.
If the taxpayer continues to ignore an IRS collection notice, the Intent to Levy notice is sent in week 15-20.
And finally, the last notice (Final Notice of Intent to Levy), sent by certified mail, can be issued in week 20-30.
If, after 30 days of final notice, the taxpayer still has not responded to the notices, the IRS will then boarder levies and file federal tax liens.
If you are wondering, “Will my IRS tax debt go away if I just ignore it?” the answer is a resounding no. By law, the IRS has up to 10 years from the date the tax is assessed (usually the filing date or the adjustment date) to collect via liens, levies, or offsets—this is the Collection Statute Expiration Date (CSED).
Ignoring these will allow the IRS to exercise its full use of collection methods (like liens and levies) within the window.
What To Do When You Receive an IRS Collection Notice
Receiving an IRS collection notice can be nerve-racking. However, do not panic. Remember that receiving an IRS notice does not mean it is the end, because there are ways to stop and prevent escalation of the issues.
First, read the notice carefully and confirm the amount owed. Verify its information and compare it against your tax records. If there are errors, collect evidence (such as bank statements) and respond to the letter by the deadline.
If you have a complex matter, do not attempt to communicate with the IRS on your own. Tax problems, such as large debts, disputes, risk of enforcement, and eligibility for relief options (Installment Agreement, Offer in Compromise, etc.), are recommended to seek help from a tax attorney.
For example, in situations like these, there is a risk of inadvertently agreeing to unfavorable terms, revealing information that complicates your case, or misunderstanding information and opportunities, which can lead to an adverse course of action.
Options for Resolving IRS Tax Debt (Instead of Ignoring It)
Paying in Full
The quickest way to resolve IRS tax debt is to pay your debt in full. This will immediately stop the authority from taking any further action.
IRS Payment Plans
If paying in full isn’t a feasible option for you, consider an IRS payment plan. This option allows taxpayers to pay tax debt in installments, usually monthly. Payment plans allow for more manageable tax repayments and prevent the authority from taking further action, provided the payment is made.
Offer in Compromise
An offer in compromise (OIC) is a relief option that allows taxpayers to settle their tax debt for less than the full amount if paying in full would cause economic hardship or other qualifying reasons. To qualify, there are eligibility requirements, including the IRS considering your income, expenses, assets, and ability to pay.
Currently Not Collectible (CNC) Status
A CNC is available for those in a situation where paying the debt would cause severe hardship (e.g., inability to cover basic living expenses). In this instance, the IRS will classify the debt as Currently Not Collectible, temporarily halting enforced collection.
How Greenberg Law Group, P.A. Can Help
To ignore an IRS collection notice should never be the course of action. As you’ve read in this article, waiting to respond will just make your problems bigger and more complex.
Seek professional assistance from an attorney who knows precisely how to respond to the notices, communicate effectively with the authorities, and find solutions tailored to your tax situation.
Any tax issues, no matter how basic or complex, we can help you choose the most suitable options so you can stop them from escalating and prevent future problems. Contact us and let’s start resolving your tax issue today!
