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Back Taxes and Tax Debt

Why you should never ignore an IRS tax bill

Jo Willetts, EA

Director, Tax Resources

Updated on: July 12, 2022

When you get a tax bill, it's important to act, whether you think the bill is correct or have the money to pay it. Ignoring an IRS tax bill is never a good idea, because the notice starts the IRS collection countdown.

What is IRS collection?

When the IRS sends your case to IRS Collection, it means the IRS has contacted you with notices and a tax bill, but you still haven’t paid.

The IRS may try to collect the money by taking your assets through liens and levies, or sometimes, the IRS will assign private contractors to collect tax debts. The IRS uses private firms only when the IRS has done everything it could to collect. If the IRS assigns your case to a private firm, the IRS will notify you and provide security information so that you can identify the private collector as legitimate.

The IRS collection process, step-by-step

Here’s what to expect if your case goes to IRS collection:

  • You file your tax return and owe, or the IRS charges you additional taxes (like through an audit). The IRS assesses, or charges, you the taxes.
  • The IRS sends you a tax bill, which shows the taxes you owe, plus any penalties and interest. Your bill will give you payment options and the due date.
  • If you don’t pay the bill or get in touch with the IRS, they’ll send you a series of notices, and a final bill demanding payment.
  • If you ignore the final bill, IRS collection efforts will begin.

There are several collection actions the IRS can take:

  • Taking part or all your future refunds. The IRS can apply your later tax refunds to overdue taxes, penalties and interest.
  • Federal tax lien. When the IRS files a federal tax lien, it’s making a legal claim against your current and future property. The notice of a federal tax lien is a public notice to let creditors know the IRS has a claim against your assets.
  • Seizure/levy. The IRS can seize your wages, assets, and money in accounts. If this is going to happen, the IRS will send you a Notice of Intent to Levy and Notice of Your Rights to a Hearing. The IRS will apply the value of any assets it takes to your tax bill. Common examples of assets the IRS can take include your wages, bank accounts, and retirement assets and income.
  • Passport restrictions. If the IRS classifies your tax debt as seriously delinquent, you may have passport issues. The U.S. State Department can revoke your passport, or deny you a new passport or passport renewal.

How to avoid IRS collection

Remember that the IRS wants to work with you to resolve your tax debt before taking actions like liens and levies. A big part of the resolution process is communication.

If you don’t think your tax bill is correct, call the IRS at the number on your bill or talk to your local IRS office. You can also authorize an expert like a Jackson Hewitt Tax Pro to talk to the IRS for you. If the tax bill is incorrect, the IRS can revise it.

If the bill is correct and you can’t pay it all right away, you can still avoid IRS collection. For example, you can secure an installment agreement, which is a monthly payment plan that allows you to pay over time. There are several types of agreements–some quick and easy to get–that you can apply for online, by phone, mail, or in person.

There are also options for people who can’t afford any payments, such as currently not collectible status, which pauses payments and collection, and the offer in compromise, which allows you to settle your tax debt for less than you owe. Only people with specific circumstances will qualify for these options, so it’s a good idea to get the help of a tax professional to understand and pursue your options.

You still need to file your return

Some taxpayers try to avoid IRS collection by not filing their tax return. This is a bad idea. When you don’t file a required return, the IRS can file a Substitute for Return (SFR) for you to estimate the tax you owe and then collect on it. The IRS uses information from your past returns, plus income information your employer reports, to file this return—without the benefit of deductions or credits. Then, the IRS will bill you, and include a hefty late-filing penalty.

Clearly, the consequences are serious when your case goes to IRS Collection. If you need any advice on your tax debt or tax return, Jackson Hewitt can help. Our trusted Tax Pros can work with the IRS on your behalf and help you get back on track.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 25 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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