Why Ignoring the IRS Could Cost You Big Time
Introduction
Receiving an IRS notice can be intimidating. Your first impulse may be to deal with it later, much, much, much, much later. I want to tell you that ignoring an IRS notice could have serious repercussions. In this blog post, I am going to lay out the consequences of ignoring the IRS and how it can cost you dearly.
The Consequences of Ignoring IRS Notices
If you are ignoring the IRS, maybe it is because you cannot pay what you owe. Or maybe, you think that the IRS may not do anything and so you can avoid dealing with your problems for one more month. Such short-term thinking will only lead to more trouble with the IRS. Here’s why:
- Increased Penalties and Interest: Ignoring an IRS notice just means more interest and penalties stack up, making it much harder to deal with your IRS tax debt. Currently, IRS interest rates are in the 7-8% range while penalties can add another 1/2 % or more on top of that.
- Wage Garnishments and Bank Levies: Ignore the IRS enough and the IRS might garnish your wages, which means a large portion of your paycheck will be taken to satisfy your tax debt. The IRS can also seize money in your bank accounts, leaving you with no money to pay your bills and probably leaving you with bounced check fees.
- Tax Liens: A notice of tax lien can be placed on your property in the local registry of deeds. Now everyone who knows how to search the registry of deeds can find out about your IRS problems, to include banks and other lenders. You will also be deluged with letters and calls from fly-by-night national resolution firms and scammers seeking to scare you into paying them.
- Missed Deadlines: Some IRS notices contain deadlines to act (e.g. file a response to a proposed change to your tax return or to avoid an IRS tax levy or tax lien) and if you do not respond then you lose the chance to challenge the IRS’s proposed actions.
Real-Life Example
I had a client, let’s call him “John”, who a small business. He was audited by the IRS. He had his accountant handle the audit and after some time he started getting IRS notices. He opened one and it looked like it was related to his audit. He ignored it as his accountant was “handling it”. Hadn’t he sent everything over to his preparer. So, John had nothing to worry about. Or so he thought.
It turns out his accountant was not really dealing with the audit. The IRS after not hearing from either John or his accountant, just closed up the audit by denying all of his claimed deductions. The notice he received was a warning him that the IRS had proposed to assess him $100,000 in additional taxes, interest, and penalties. It also informed him he had 90 days to file a case in US Tax Court to challenge the IRS’ audit adjustments. By the time John reached out to me, the 90 days had come and went. Now the IRS was sending John billing notices and had slapped a notice of federal tax lien on his property.
John can certainly seek to sue his accountant but that’s not going to help him right now. Lucky for John there are ways to challenge the IRS even after he missed the deadline, but it is much harder and more expensive. We are still fighting this out with the IRS, but I am hopeful that the IRS will understand the situation and allow him most, if not all, of his claimed expenses.
Don’t be like John, open and read all IRS notices!
Steps to Take When You Receive an IRS Notice
- Read the Notice Carefully: Understand the reason for the notice and the actions required. You can type the IRS notice number (located in the upper right corner of the notice) into the search bar at www.irs.gov and find out what the notice is for if you are not sure.
- Respond Promptly: Contact the IRS immediately, or, better yet, call a tax professional to discuss your options.
- Keep Records: Maintain copies of all correspondence and documentation related to your tax issue. You want to show what you received and when. Many taxpayers cases are tossed out when they cannot prove he or she timely responded to the IRS.
- Seek Professional Help: A tax professional can help you understand your IRS notice and if need be guide you through the process of responding to the IRS notice.
Summary
Ignoring IRS notices is a quick way to make your IRS problems worse. Addressing IRS notices promptly and seek professional assistance, if you need it, so you can protect your financial future and avoid unnecessary stress. In short, if you receive an IRS notice, don’t wait—act today!
If you or someone you know has an IRS problem and you have some questions about what your options are, you can reach my firm using the contact information below.
Beacon Tax Advocates, LLC
57 Portland Road, Ste. 3
Kennebunk, ME 04043
207-502-7181
jwade@beacontaxadvocates.com
www.beacontaxadvocates.com