Receiving notification from the Internal Revenue Service that there’s some kind of problem is one of the most bone-chilling situations an American taxpayer can experience. Just receiving an envelope with a return address from the IRS can strike fear. There are many different reasons that the IRS might reach out, but some are more common than others.
Here are the top issues that would cause a taxpayer to hear from the IRS or require you to resolve an issue:
- An Error
On Your Tax Return – Nobody’s perfect, and filling out tax
returns is not an easy thing. If you’ve made a mistake, whether it’s something
simple like filing status or number of dependents or something bigger like
total income or incorrectly claiming a deduction, if you discover it on your
own, all you need to do is file an amended return using form 1040X, the Amended
Individual Income Tax Return. If the mistake means that you owe more money,
quickly submitting the amount that you owe will help you avoid having to pay
too much in penalties or interest. It’s not at all unusual for the IRS to
discover mistakes – especially math mistakes – and they will generally notify
you that they have made corrections on your behalf.
– Along the lines of the mistakes referenced above, there is a specific form
that the IRS will send you if they determine that the amount of income you
report on your tax return is different from what has been reported by
employers. That form is the CP2000 Notice, and the
agency will send it to you, notifying you of the corrected amount, should they
review your return and feel that it is appropriate.
- Failure to
File a Tax Return – Filing a tax return isn’t necessarily
required if you don’t owe money or if you’re owed a tax refund, but it’s not a
good idea. Failing to file a return when you’re owed a refund puts you at risk
of losing out on receiving the money you’ve owed – you have just three years to
amend the problem if you want to get your money. For those who are in arrears
to the IRS, there is a significant negative outcome to failing to file a
return, including having to pay a “failure to file” penalty that can go as high
as 25 percent of your unpaid tax bill: 5 percent of the amount you owe, plus
interest, will be charged for each month for up to five months
- You Owe
the IRS for Taxes Not Paid – When the IRS calculates that you have not
paid them the full amount that you owe, they will send you notification of what
they believe the difference is via form CP14.
- You Owe
the IRS Penalties and Fees – When you don’t pay your taxes or you fail
to file a return, the IRS will notify you that you owe them penalties, and
- You Owe
the IRS But Can’t Afford to Pay – There are many taxpayers who find
themselves facing a tax bill that they are simply unable to pay all at once. If
you fall into this category, the IRS does offer the option of paying in
installments. To request this type of payment plan, contact the agency. If even
paying in small increments is outside of your ability, you may be able to
negotiate a reduced tax bill through what is called an Offer in Compromise.
- Tax Debt
Resulting in Tax Levy – If you are unable or unwilling to satisfy
your tax debt, the IRS may opt for a tax levy, which is the legal seizure of
your property in lieu of payment. A tax
levy can take the form of real property such as real estate,
your vehicle or personal property, or your wages, the money in your bank
accounts or your financial accounts. Notification that a levy is being issued
against you comes via either notice LT11, CP504, CP90, or CP91.
- Notification that A Tax Lien Has Been Filed – If you have failed to pay your tax debt, the IRS may take action to protect its own interests ahead of other creditors by filing a tax lien. This comes in the form of Letter 3172, which will be sent to both you and your other creditors to let them know of the government’s claim against your financial assets, personal property and real estate. By sending this letter out, the government ensures that it will benefit from the liquidation of any of your property in order to satisfy the amount that it is owed. Once a lien has been placed on your property, it is extremely difficult to get out of until you’ve paid up.
A notification from the IRS is not something to be ignored. The best step is to take a deep breath, read the notice carefully, and if needed, contact our office for assistance.