Although receiving a tax bill from the Internal Revenue Service (IRS) is always unpleasant, ignoring an IRS tax bill is a grave mistake that can snowball into serious trouble for the respective citizen. The worst thing citizens can do irrespective of whether they believe the bill is wrong or simply can’t afford to pay it is to sweep the bill under the rug.
When IRS notices go unanswered, citizens’ cases move into the IRS collection process causing things to get ugly.
What to note about the IRS collection process?
Things get messy when the IRS moves to the collection process. The collection process begins after the IRS has sent tax bills to citizens and received no payment or communication from those citizens that they sent the tax bill notices to. The collection process means that an individual’s case was handed over to the IRS’s collection division and the collection division starts to recover money owed more actively.
In the beginning, the collection process could mean applying future tax refunds to a citizen’s balance. But if a citizen continues to not pay the bill, the IRS can escalate collection actions. Such actions include:
- Federal tax lien: A public record that asserts a legal claim against a citizen’s property.
- Levies: The IRS can seize assets like a citizen’s bank accounts, wages, or even retirement funds.
- Passport restrictions: If your tax debt is deemed “seriously delinquent,” the State Department can revoke or deny a citizen’s passport.
If the IRS has exhausted all their efforts and payment is still not made, they assign a citizen’s case to a private debt collection firm although the citizen will be notified when this happens.
Reasons why you should never ignore the IRS
The IRS’s process extends beyond that of sending bills. The way the IRS process works is as such:
- Whether a citizen files a return or not, and the IRS determines the citizen owes tax.
- A bill is sent, which includes taxes owed, penalties, and interest.
- If a citizen ignores the bill, a series of increasingly urgent notices follow.
- After the final notice, if there’s still no action, IRS collection begins.
Citizens should not believe that not filing a return would prevent the IRS from collecting a tax bill. The IRS can file a Substitute for Return (SFR) on the citizen’s behalf using his or her reported income, but they won’t apply any deductions or credits the citizen may qualify for. This is why it is so important to meet the tax deadline. Thereafter, the IRS bills citizens and starts the collection process again, however, with massive penalties.
Ignoring the IRS leads to damages: credits and finances
Ignoring the IRS collection can hinder many aspects of your financial life. A federal tax lien could result in a damage to your creditworthiness. Having your wages garnished or your bank accounts seized can interrupt your life drastically.
Stopping the collection clock
The IRS generally prefers to work alongside taxpayers rather than against them. Citizens who cannot pay for a tax bill that they have received have several options:
- Installment Agreement: Paying their debt over time through monthly payments.
- Currently Not Collectible Status: Temporarily pause IRS collection due to financial hardship.
- Offer in Compromise: A citizen can settle their tax debt for less than the full amount, if they qualify.
Citizens who think their bill is wrong still need to respond to the IRS. They should contact the IRS and perhaps work with a tax professional who can advocate for them on their behalf.
In essence, ignoring IRS bills doesn’t reduce them or make them go away but invites serious consequences. Citizens file their tax returns in time, and they must remember that there are ways to save in taxes in certain states.
