You Received a Collection Notice – Now What?
The IRS resumed sending automated collection notices in January following a lengthy, but much needed, pause to address paper processing backlogs that built up during the pandemic. Recently the IRS began sending Intent to Levy notices, including Federal Payment Levy Program (FPLP) notices. The FPLP is an automated process the IRS uses to systemically levy federal payments owed to taxpayers, including Social Security benefits.
No matter what kind of collection notice you receive, don’t ignore it! Ignoring a collection notice can have costly consequences.
Here are some tips to assist you if you receive an IRS collection notice.
What Should You Do if You Receive a Collection Notice?
If you receive a collection notice, you should first confirm the notice is accurate. The easiest way to do this is using an online account at IRS.gov. Through an online account, taxpayers can view their balance, payment history, and transcripts, which contain detailed account information. Taxpayers may also request a transcript by mail or phone. You can find detailed instructions about getting transcripts by reading the TAS Get Help page on Getting a Transcript.
If you disagree with the notice or it is inaccurate, carefully read all instructions in the notice and meet all response deadlines.
Ignoring a collection notice only makes the situation worse (and more expensive). It’s important to know:
Penalties and interest continue to accrue until the liability is paid in full. I discussed the impact of the failure to file penalty, failure to pay penalty, and interest in my April 17, 2023 blog (NTA Blog: Why It’s Important to File Your Tax Return Timely, Even if You Can’t Pay), reminding taxpayers of the importance of timely filing tax returns and paying any balance due.
The IRS will offset current refunds and overpayments to cover other unpaid tax debts as well as certain other qualifying debts. However, if you are experiencing an economic hardship, you may be able to avoid offset of a refund against other tax liabilities through an Offset Bypass Refund, as I discussed in NTA Blog: How to Prevent a Refund Offset If You Are Experiencing Economic Hardship.
The IRS can levy on wages, bank accounts, or other property and/or file a notice of federal tax lien against your property.
The IRS can certify seriously delinquent tax debts to the State Department, which can result in the State Department revoking a taxpayer’s passport or denying a passport renewal.
For advice, taxpayers should consider reaching out to a tax professional or, if eligible, contact a Low Income Taxpayer Clinic (LITC) for assistance. More information on LITCs is provided below.
Collection Due Process
The IRS generally must issue a Collection Due Process (CDP) notice to taxpayers when it files a notice of federal tax lien or before it issues a levy. This CDP notice allows taxpayers to request a hearing, generally using Form 12153, Request for a Collection Due Process or Equivalent Hearing, before the Independent Office of Appeals (Appeals) to review the filed lien or proposed levy. The taxpayer must file the hearing request within 30 days of the date of the notice. During a CDP hearing, taxpayers have the opportunity to raise defenses, challenge the appropriateness of collection actions, and propose collection alternatives. After the hearing, Appeals issues a notice of determination, which provides the taxpayer with 30 days to request Tax Court review of the determination.
If you miss the 30-day deadline to file a request for a CDP hearing, you may request an Equivalent or Collections Appeals Program (CAP) hearing, but the Tax Court generally may no longer review the determination. For more information on CDP, visit the TAS Roadmap – Taxpayer Requests: CDP/Equivalent/CAP.
Audit Reconsideration
If you disagree with the amount of tax the IRS says you owe, you may qualify to request audit reconsideration. Audit reconsideration allows you to reopen your audit if:
You have new information;
You disagree with the amount of tax the IRS says you owe;
You never appeared for the audit appointment or sent the IRS your information; or
You moved and never got the IRS’s audit report.
For more information, see the TAS Get Help page on Audit Reconsiderations.
Payment Options
You should consider paying the balance due as soon as practical. The IRS offers several options to make payments online using a bank account or credit card. Payments of any amount will help reduce future penalties and interest. If you cannot pay or cannot pay in full, there are options. For more information on paying a balance due, read our TAS Get Help page, I Need Help Resolving My Balance Due.
Payment Plans
For those unable to pay in full, the IRS offers various payment plans that taxpayers can request online, by submitting Form 9465, Installment Agreement Request, or by calling the IRS. For more detailed information on payment plans, including user fees and low-income waivers, read our TAS Get Help page on Payment Plans.
Offers in Compromise
If a taxpayer cannot pay the taxes in full, the taxpayer may submit an Offer in Compromise. This allows taxpayers to settle their tax debt for less than the full amount owed. The IRS provides a pre-qualifier tool to determine eligibility. Use of the tool does not guarantee offer acceptance. For more information on offers in compromise, read our TAS Get Help page, Offer in Compromise.
Currently Not Collectible Status
Taxpayers can also request a payment pause by requesting Currently Not Collectible Status. The IRS will analyze your ability to pay based on your income and expenses, and if the IRS agrees that you cannot currently pay, it generally will suspend collection actions. However, penalties and interest will continue to accrue. For more information on currently not collectible status, read our TAS Get Help page, Currently Not Collectible.
Penalty Relief
If a taxpayer qualifies, there are several options for requesting penalty relief. Taxpayers may qualify if they can show the failure to timely file the required return or pay taxes due on time was due to reasonable cause and not willful neglect. To establish reasonable cause, the taxpayer must show that they acted with ordinary business care and prudence but were unable to file the return within the prescribed time or were unable to pay the tax by the due date or that payment on the due date would cause an undue hardship. Reasonable cause is determined case by case considering all the facts and circumstances.
First-Time Abate (FTA) may also be an option to consider when the taxpayer can show filing compliance, payment compliance, and a clean penalty history. Taxpayers must show they did not have to file a return or if required to file, had no penalties assessed against them in the prior three years (or any penalty was removed for an acceptable reason other than FTA, for example, due to reasonable cause); have timely filed all required returns (or filed a valid extension); and have paid or have a valid payment plan to pay all taxes due for years other than the year for which the relief is requested. FTA applies only to certain penalties (failure to file, failure to pay, failure to deposit). Supporting documentation is not required if a taxpayer meets FTA criteria. However, taxpayers must request penalty relief, in writing or on the phone, to be considered for FTA.
Please consult IRS.gov for types of penalty relief.
Low Income Taxpayer Clinics
LITCs are independent from the IRS and the Taxpayer Advocate Service (TAS). LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page at www.taxpayeradvocate.irs.gov/litc or IRS Publication 4134, Low Income Taxpayer Clinic List. You can also request Pub. 4134 by calling 800-TAX-FORM (800-829-3676).
TAS Assistance
If you have a tax problem that is causing a financial difficulty and you have tried, but have not been able to resolve your issue with the IRS, TAS may be able to help. As an independent organization within the IRS TAS can offer free help to taxpayers who qualify and we work to protect taxpayer rights. Learn more about TAS by visiting our About Us page or call 877-777-4778.
Conclusion
Owing unpaid taxes to the IRS can be stressful – but whatever you do, don’t ignore a collection notice from the IRS. Ignoring a collection notice will only create more stress and can cause additional penalties and interest to accrue. Paying your taxes isn’t as scary as it might seem when you are armed with the knowledge to successfully navigate the IRS collection process.
Resources
NTA Blog: How to Identify the IRS’s Broad Penalty Relief Initiative and Other Helpful Tips for Understanding Tax Account Transcripts: Part One
NTA Blog: How to Identify the IRS’s Broad Penalty Relief Initiative and Other Helpful Tips for Understanding Tax Account Transcripts: Part Two
TAS Get Help: Levies
TAS Get Help: Liens
TAS: Collection Station – Collection Actions
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